Reverse Logistics: It's All Coming Back to Me Now
How to recoup maximum value on a product when the first sale doesn't work out.
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When you shop online, you're more likely to return what you buy than when you shop in a store. And people are doing a lot more shopping online during the pandemic.
According to an Inmar Intelligence survey conducted in 2020, 81% of respondents planned to do more holiday shopping online in 2020 than in past years, and 39% planned to make all their holiday purchases through e-commerce.
"We've been telling our merchant partners they've got to gear up for what may be as much as a threefold increase in return volumes over past years," says Ken Bays, vice president of product management at Inmar.
The COVID-19 emergency will end someday. But the e-commerce habit, once acquired, tends to stick. With more consumers filling electronic shopping carts, retailers and brand owners need to hone their reverse logistics strategies to recover as much value as possible from products that bounce back.
Who takes charge?
Companies haven't always put a lot of effort into managing returns. "Most people didn't think much about it because return rates were modest, or they didn't understand the impact returns were having financially," says Charles Johnston, chief operations officer at goTRG, a Miami-based business that provides a fully managed returns solution for retailers and manufacturers. Johnston ran reverse logistics for Walmart from 2005 to 2012 and served as director of repair and returns for The Home Depot from 2012 to 2017.
In Johnston's early days at Walmart, the standard practice was to send returned items back to suppliers, unless those vendors were overseas. Today, retailers and suppliers often take a more collaborative approach, he says. The goal is to maximize recovery by getting product into secondary markets faster, rather than running up costs with excessive handling.
"While 20 years ago, 85% of volume that came through would be handled by sending it back to the manufacturers, today I'd guess that 35% would be a high number," Johnston says.
Tony Sciarrotta, executive director of the Reverse Logistics Association (RLA) in Alpharetta, Georgia, saw a different evolution during his years in charge of returns management at Philips Consumer Lifestyle.
Back then, manufacturers often gave retailers allowances for products that consumers returned, and let the retailers handle liquidation, he says. Often, a retailer would throw miscellaneous products—headphones, coffee machines, and so on—into a gaylord box and sell the whole lot.
Concerned about the disposition of products that bore its name, Philips stopped the allowances. "We insisted on taking everything back, because as a manufacturer we needed to maintain control over our brand," Sciarrotta says.
Today, either a retailer or a brand owner might take charge of returned merchandise, depending on the arrangement those partners negotiate.
Process, refurb, resell
Although a trip to the landfill is the worst reverse logistics outcome, many retailers do simply toss returned items. "They don't know that, even despite the handling costs, there is value in the product," says Johnston.
Others put mixed items on pallets and sell them to liquidators at rock-bottom prices. "They may be selling at 7% on the dollar, when there's product in there that you can recover 80% for," he says.
goTRG customers use its software to determine the most remunerative path for each returned item—whether to send it as-is to a clearance shelf, refurbish it for resale, or sell it into any of several kinds of liquidation channels. Retailers and manufacturers can also contract with goTRG to receive, process, refurbish, and resell returned inventory for them.
Inmar provides similar services. It recently formed a partnership with Happy Returns, which receives product for e-commerce merchants at "return bars" set up in retail stores across the United States.
"Our process takes over from Happy Returns," says Bays. "We open the package, evaluate the condition of the product, compare that to what the consumer said about the product, and record all that data. Then our system uses that data to derive the best possible outcome."
Inmar, which operates from 21 locations across the United States, also provides those services to retailers that don't work with Happy Returns.
If an item arrives in great condition, it might go right back into stock. "For some customers, as much as 93% of everything that comes in is able to be cleaned up, refolded, reboxed it if it's shoes, have new inserts added to the shoes, and then put back into a forward picking location so it can go out on a new sale," Bays says.
For items that are less than perfect, Inmar offers them to a network of 5,000 liquidation buyers.
When customers return products made by Acer America—bought in brick-and-mortar stores, through online retailers, or on Acer's own e-commerce site—all those products go to a reverse logistics center run by Acer. There, the electronics manufacturer wipes data from storage, checks products for defects, and makes hardware, software, and cosmetic repairs as needed.
If a product has many scratches and dents but still works, Acer keeps it to mine for spare parts, says Joyce Cruts, vice president of supply chain and operations at Acer America in San Jose, California.
Acer used to sell refurbished products through auctions, wholesale liquidators, and direct-to-end-user retail. But several years ago, the company cut auctions and wholesalers from its strategy.
Those channels are fast, but they have drawbacks. "First, the recovery value is pretty low," Cruts says. "Second, you have to be careful not to create channel conflict, because you don't know where your products are going."
Refurbished items that Acer put up for retail sale could end up competing with Acer products that liquidators were selling through the same channels.
"Now, we sell close to 100% directly to the end user," Cruts says. Acer makes those sales through e-commerce sites such as the Amazon Renewed shop, eBay, Walmart.com, and Newegg, plus its own Acer Recertified shop.
Brand owners and retailers seeking markets for returned product can work with companies like Inmar or goTRG, or perhaps with B-Stock Solutions in Belmont, California. B-Stock doesn't process returns, but it helps sellers set up liquidation auction sites.
Amazon, Walmart, Target, and The Home Depot are among the companies that use B-Stock's technology to sell merchandise by the pallet load. B-Stock also counts manufacturers and brand owners among its customers, says Marcus Shen, its chief operating officer.
Besides providing digital auction venues, B-Stock works with third-party logistics (3PL) providers to help with transportation. "If a large retailer sells a lot of merchandise, we prearrange a carrier to facilitate the transaction," Shen says.
Companies trying to liquidate returned and overstock inventory used to rely on personal networks to find willing buyers. B-Stock offers a much bigger market.
"Instead of just opportunistically finding one buyer to negotiate with, we bring thousands of buyers to a platform where they can compete for inventory," he says. Buyers using those auctions tend to be smaller entrepreneurs who resell products through e-commerce stores or small brick-and-mortar off-price retail businesses.
Larger companies buy liquidated product as well. During Sciarrotta's days at Philips, he says, the company sold returned product—directly or through distributors—to off-price chain stores such as Big Lots, Ollie's Bargain Outlet, and Bargain Hunt, and to online discounters such as Woot! (now owned by Amazon).
Advice from the field
Here are some other best practices that industry experts recommend for managing products that need a second life:
1. Use a central returns facility. At one time, Philips had its returns shipped to various partners around the United States for refurbishment—TVs to a company in Arkansas, DVD players to a company on the West Coast, and so on. Then a logistical analysis showed that it was more cost-effective to do all that work in one location.
"We said, the West Coast does a cheaper job fixing our DVD players, but if you're shipping from east of the Mississippi, it costs more money than you're saving on repairs," says Sciarrotta. Ultimately, the company created a central returns processing center in the Midwest.
Acer also uses one central facility to receive and refurbish returns. "That's for economies of scale, and to make it easier for the retailers," Cruts says.
2. Take control of reverse logistics. To keep returned inventory from sitting on the books as a liability, it's important to process and resell it as fast as possible, Cruts says. That can be a challenge when retail partners are slow to ship product back to manufacturers, or their shipments encounter bottlenecks.
"We try to work with every channel partner to avoid hiccups in that process," she says. "One way to do that is to manage the logistics ourselves—to use one of our carriers, for example, instead of one of their carriers."
3. Move liquidation further up the supply chain. Once a returned product leaves the hands of the manufacturer or retailer, every additional person who touches it makes money, Johnston says. Cut the number of people in that chain, and you'll keep more of that value for yourself.
"A lot of things end up in pawn shops that buy them for 8 cents on the dollar and sell them for 20 cents on the dollar," he says. "You spend all this money getting it to the pawn shop when you could have recovered 30% selling it at the first point of touch."
4. Meet customer expectations. The fewer items customers return, the more money retailers or manufacturers keep. And (except when shoppers buy clothing in three sizes, try everything on, and send two items back), the key to limiting returns is to make sure consumers are happy with product they buy.
"People don't bring things back just because it's a sport," says Sciarrotta. "They send things back because something went wrong."
The problem could simply be a disconnect between how an item looks on a website and how it looks in person. Or the product might be fundamentally inadequate.
Items that don't disappoint
To get to the root of such disappointments, Inmar runs analytics on data it collects about the reasons for returns. "We report that back to the merchant to identify things such as a certain SKU coming back frequently as too small," says Bays. "Maybe they need to look at their sizing chart."
Cruts and her team at Acer also monitor the motives for returns. "We give the feedback to our R&D engineers to ensure that the next generations of product are of a better design and don't have the same issues," she says.
No matter how excellent its future products, though, it's unlikely that any company will ever push returns down to zero. That's why smart sellers will continue to refine their reverse logistics strategies, hoping to keep more money in their pockets when they send returned products to their ultimate homes.