45% of Retailers Use Repair and Resale to Wrangle Rising Returns
Reverse logistics have long been a pain point for consumers and retailers alike.
And as holiday shopping season approaches, retailers may not be fully prepared to adequately process returns in a way that still nets them a profit. Despite the rise of third-party logistics (3PL) solutions providers and partnerships with other companies, retailers say they have a long way to go where returns are concerned. Meanwhile, consumers have begun selectively shopping with retailers based on their return policies.
More from Sourcing Journal
Happy Returns Acquisitions Makes UPS 'Most Consumer-Friendly Logistics Provider'
Blue Yonder to Acquire First- and Last-Mile Logistics Company Doddle
A new survey of over 100 supply chain and logistics leaders inside Fortune 1000 retail companies from Liquidity Services found that 61 percent of retailers’ return processes involve between two and five different corporate departments.
For an already convoluted process, having too many departments can muddy the waters even further, Girish Jaguste, Liquidity Services’ vice president of sales, retail supply group, said.
“Reverse logistics is always siloed and fragmented — you have the store ops responsible for a certain portion of your reverse operation, then you have the distribution centers, operating a certain portion. Overall P&L responsibility is very rare in this, and because of that, what happens is everyone focuses on their own set of goals and metrics,” he told Sourcing Journal.
Part of what makes reverse logistics so complex is the fact that retailers have a slew of options on how they can process returns — what Jaguste calls “dispositioning.”
“Dispositioning is really that core process where you touch that return and decide what happens with it,” he said.
Jaguste said that the data collected by the survey showed that, on average, most retailers had three separate methods for dispositioning — whether return to vendor, return to stock, bulk liquidation on sites like liquidation.com, refurbishing and reselling, donating, contracting with a third party or otherwise.
Sixty-four percent of retailers indicated that the merchandise they recover is returned to the vendor. Jaguste said this allows for the highest cost recovery; return to stock helps retailers yield the second-highest cost recovery, because retailers can sell the goods like new. According to the survey, 27 percent of retailers employ this method.
“Those are always the highest-value methodologies or dispositions for retailers. But then when you’re looking at the next tier, it’s the retailer’s internal capabilities. If you have your own outlet stores, or if you have a way to sell it back, whether it’s used or refurbished back on your own site, or in your own stores, that’s the next tier — you might have to do a slight discount, 10 percent, 20 percent, to sell that product, but it’s going through your own channels without any additional selling fees,” he said.
Refurbishing and reselling have become a popular option among retailers, 45 percent of whom said their organization uses the strategy as a method to recover costs associated with returns. Programs like Patagonia’s Worn Wear, Clothes the Loop by The North Face or Re/Supply by REI not only allow retailers to turn a profit — they also keep items out of landfills.
“So many fashion retailers are putting their returned product, along with their new product, on their own site. There is a high demand from buyers to buy those for all sorts of reasons, including sustainability, which is top of mind for a lot of retailers,” Jaguste said.
Retailers face a number of issues with processing returns, per the Liquidity Services report. Thirty-six percent of retailers reported that a major problem they face is that “the sales process is too cumbersome.”
That tracks with recent data released by Happy Returns, a third-party reverse logistics company partnered with brands including Levi Strauss, Good American, Everlane and Steve Madden.
The report notes that, “79 percent of merchants surveyed have had to choose between shipping new orders versus processing returns due to limited warehouse resources.”
That could quickly become a problem for retailers. Happy Returns reported that 87 percent of retailers reported an uptick in the number of returns they received this year. And simultaneously, the Census Bureau reported in August that e-commerce is up 7.7 percent year over year since 2022.
All that in mind, it’s no surprise that 3PL companies have popped up left and right — especially with the rise in artificial intelligence-based technology. According to IBIS World, the market size of the 3PL industry has, on average, grown 4.5 percent annually between 2017 and 2022.
Blue Yonder, the supply chain management company, announced this week it would acquire first- and last-mile logistics company Doddle, in an attempt to help its clients convenience their customers during the returns process.
But despite that rise in the 3PL market size, Jaguste said, large retailers aren’t outsourcing the entire reverse logistics process to third parties — but that trend could differ with smaller retailers.
“Most of your large organizations, they’re not going to completely rely on a third party,” he said. “If we were to do this survey with [smaller retailers], you’d probably see a much larger percentage there. A lot of these smaller retailers who don’t have the internal capabilities will rely on somebody else to do that, and find a way to provide that customer credit as fast as they can.”
For customers, decisions around returns rest primarily on convenience — and decidedly, consumers have a strong preference around that.
Happy Returns found that 91 percent of shoppers are more likely to shop with a retailer that offers box-free, label-free, in-person returns and immediately initiates refunds. And 90 percent of consumers said they avoid shopping with retailers who mandate mail-in returns.
For retailers, consumer behavior around in-store returns could net profit, Jaguste said.
“If you look at the footprint of these retailers, a lot of times it’s more cost effective for them to utilize that store network than then try to go to an external vendor to do that. It also increases foot traffic — if someone is coming back and returning in store, that presents an opportunity to purchase new [products].”
As holiday shopping season looms before retailers, and as 74 percent of consumers report that they expect to increase their holiday spending, returns become an even more pressing issue for retailers, 60 percent of whom say they know their return processes don’t meet consumers’ expectations.
Those retailers could end up on consumers’ naughty lists this holiday season — 73 percent of shoppers said a negative experience with returns impacts their likelihood of shopping with that retailer in the future, according to Happy Returns’ report.
In line with that sentiment, many retailers have already begun making their New Year’s resolutions.
Based on consumer preferences and a need to optimize reverse logistics, 98 percent of retailers say they are evaluating how they can improve their return processes within the next year, according to the Happy Returns research. The Liquidity Services survey provides some insight into how retailers aim to do that: 67 percent of retailers said they plan to use multiple selling channels for liquidation; 52 percent of retailers said they would improve the return sorting and disposition processes and 38 percent of retailers noted their plans to increase their pools of liquidation buyers.
