December 2014 | Commentary | Viewpoint

Four Reasons Retailers Should Pay Attention to Reverse Logistics

Tags: Reverse Logistics, Retail, Legislation, Public Policy, and Regulations

Karl Swensen is Assistant Vice President, Retail Consulting, Cognizant, 201-801-0233

Many retailers have long emphasized agility and cost-efficient movement of freight to stores or customers. However, they often neglect reverse logistics, resulting in missed opportunities for the entire consumer goods supply chain.

The multi-channel model—which enables consumers to buy anytime, anywhere—has significantly impacted the retail industry and given rise to the following reasons why retailers need to focus on reverse logistics.

1. Increasing rate of returns. Customer returns historically range between eight and nine percent of total retail sales, according to the National Retail Federation and Retail Equation. This proportion is quickly shifting with consumer shopping habits.

In the United States, online sales maintain aggressive growth, and account for nearly nine percent of the $3.2 trillion retail market in 2013, based on research from Forrester. Online retail boasts a projected compound annual growth rate of about 10 percent through 2018. The chief executive of one online fashion store cites average return rates across markets at approximately 30 percent. This multi-fold upsurge brings returns management to an unprecedented position of importance within retail operations.

2. Demand for flexible returns. Omni-channel retail ushered in a new set of customer-dictated rules. The retail industry must adhere to a "buy anywhere, return anywhere" policy, and provide the same return options across channels.

This unique challenge to provide flexible return options creates new opportunities for retailers to streamline policies and systems. The physical store and the online store have evolved independently until now, resulting in inconsistencies. Existing procedures and structures are often out of sync, preventing retailers from providing a seamless customer experience.

3. Compliance challenges. The proliferation of returned goods increases emphasis on compliance. Laws dictating proper handling, shipping, and disposing of merchandise govern retailers. Returned goods pose a problem, because item condition dictates their transportation and classification, which federal agencies closely control and monitor.

In addition, increased focus on product and food safety amplifies the number of recalls. Consumer product recalls have increased by 14 percent year-over-year, according to the Consumer Product Safety Commission. A recall incident can cost manufacturers millions of dollars. Recalls place a heightened emphasis on the need for an effective returns management program.

4. Returns are becoming mainstream. Amazon triggered a change in consumer acceptance of open box items and warehouse deals. The widespread attraction of budget-conscious shoppers created an opportunity for retailers to recapture value from returned items. This increase of returns occurs in many product categories, including apparel, furniture, electronics, and household items.

Reverse Logistics for Competitive Advantage

Reverse logistics is no longer a cost center. A well-planned reverse logistics strategy provides competitive advantage to grow a business across multiple channels. With clearly defined policies and processes, retailers can drive efficiencies to reduce costs, increase returned item value, manage risk associated with certain products, and make reverse logistics a profitable part of the organization.






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