Return to sender: Holiday product returns will stress supply chains


Much has been made about holiday sales, and for good reason – this holiday season is unlike any other, as supply chain disruptions continue to make it harder from retailer to consumer. But we don’t put enough emphasis on the other direction: feedback.

The reverse journey from consumer to retailer is arguably even more difficult, and is compounded by the fact that these returned products occupy the same supply chains as unsold products. With supply chains already stretched due to an unprecedented combination of high demand and heavy disruption, adding returns to the mix could cause headaches for retailers and consumers alike.

According to a 2021 Power Reviews survey, the majority of consumers appreciate the possibility of free returns, with only around 12% saying they would “never” return a product. Given this trend, it follows that most retailers would like to offer free returns, but it’s not always that simple.

According to Mark Stanton, general manager of supply chain solutions at PowerFleet, the vast majority of brands have figured out how to make returns easier for the consumer, offering several options like returns in store and returns by carrier (like FedEx or UPS). or other service (such as the US Postal Service). But not enough focus on what happens after the comeback.

Capacity constraints

Once a product enters the return process, retailers must accept it. somewhere within their supply chains. The goal for most retailers is either to reuse the product for resale at another retail store or to hand it over to another retailer to be refurbished and resold at a reduced price, but before that doesn’t happen, they need a place to keep it.

Retailers can ask consumers to bring returns to physical stores, but they can’t keep those products there forever. They also cannot send returns to the manufacturer, except in certain situations, such as a warranty return. This leaves the retailer’s warehouses and distribution centers as the primary landing points for returned products, but those spaces are already being pushed to their limits.

“There are still a lot of ships off the ports of LA and Long Beach and more are still waiting to unload product,” Stanton told Modern Shipper. “But that doesn’t mean the warehouses are empty, just waiting for things to happen.”

Increasing warehouse capacity was a priority for brands long before the pandemic, and its importance has only grown as the volume of e-commerce has grown. But adding returns to the mix makes it even more difficult as retailers have to divide their attention between selling new products and reusing old products – all while using the same supply chain.

“It becomes exceptionally more difficult at this time of year during the holidays, as the volume increases exponentially. … And they’re trying to manage that process back to their peak, ”Stanton explained. “To say it’s chaotic is probably an understatement, honestly. “

Cost and visibility constraints

But the constraints on returns go beyond mere capacity. Cost is also a major factor, so much so that some retailers choose to send their customers a free replacement product on demand rather than bear the cost of the return.

“The cost of returning a product can far exceed the profit margin on that product. So it’s actually cheaper or cheaper to ship a new one and not take the old one back, ”Stanton explained.

He added the caveat that this is only the case for certain industries and products, but the financial cost of keeping the product in a retailer’s supply chain increases as the volume of products there. transit increases.

Read: Mark Your Calendars: You Need To Know The Holiday Shipping Deadlines

To read: Put on your ponchos: The new wave of e-commerce has arrived

COVID-19 and the emerging variant of omicron are also creating costs for retailers, both directly and indirectly. Their impacts are most clearly visible at the returns processing stage, where retailers must now spend time and money disinfecting their products, but they also affect consumer behavior. Concerns about COVID make consumers less likely to want to buy a reused or refurbished product, Stanton says, which could mean retailers have less incentive to offer returns in the first place.

Cost constraints for returns can also take other forms; for example, any return that a retailer accepts but ultimately cannot keep in their supply chain has a high chance of ending up in a landfill, creating a new set of environmental costs. And with sustainability becoming more of a priority for buyers, sending returns to landfill could alienate their consumers as well.

Another issue that retailers face when it comes to returns is maintaining visibility of their transportation assets, especially chassis, to ensure they are being used efficiently. Increasing the number of chassis, Stanton says, can help alleviate some of the pressure on a retailer’s supply chain, but an even better strategy is to increase the efficiency of each asset.

“We can throw more and more trumps on these things, but that’s not necessarily the only answer,” he explained. “We need to do better with what we have and not just have more of what we have. “

And when it comes to chassis and other transportation, knowing where they are is only part of the battle. The location can give retailers an idea of ​​potential delays, but it’s just as important to know if the chassis is loaded, if it’s half or full loaded, and if it’s in transit.

What it all means

For free returns to be meaningful to retailers, they will need to overcome capacity, cost, and visibility constraints, but not all brands will be able to achieve this. It could be a boon to consumers if more companies start offering free replacement products as an alternative to free returns. But it also means that for consumers who prefer to simply return the product, the option may not be available.

However, there is an even greater impact on consumers that is not immediately apparent, and that is the fact that retailers pass the costs of congested supply chains on to consumers.

“We’re paying for this service one way or another,” Stanton said. “This retailer, this transport company, this process comes at a cost. This cost comes back to us as a consumer in one form or another.

It’s not easy to see, but inflation is one of those costs – as the cost of moving goods through the supply chain increases, which will naturally occur as retailers cash in more. of returns during the holidays, brands have little incentive to absorb these losses themselves. The likely outcome? Retailers will increase the prices of certain products during the winter months.

Of course, nothing is set in stone and retailers could always find a way to reduce the multifaceted burden of returns. But in all likelihood, reverse supply chain safeguards will take its toll and severely limit the ability of retailers to offer free returns and lower prices.

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