How Holiday Returns Can Be Gifts to Your Supply Chain

By Irv Grossman | Executive Vice President, Chainalytics

Several months before the holiday season, retailers diligently prepare their teams for the holiday rush. Significant energy is expended by these companies to plan assortments, analyze inventory strategy, and build promotional buzz with the goal of delivering positive results while servicing the mad rush of customers.

But it’s a rare company that gives full strategic forethought to what happens after the fulfillment fun is over. All the hard work of merchants, sales/service support associates and supply chain teams can be lost — along with profits — during the first few weeks of the New Year. And for customers on their return journeys, the joy of the holidays dissipates quickly in returns lines as they face the frustrations of long waits, missing receipts, open boxes, or debate with store personnel around what is considered an “allowable” return.

Typically overlooked, a well-planned reverse logistics strategy can be an extremely powerful weapon for improving the customer experience, minimizing costs, maintaining sustainability or simply getting suppliers aligned on definitions around what makes a happy and profitable customer.

Reverse Logistics for the 2015 holiday season

As retailers gear up for the 2015 holiday shopping season, it’s time to elevate reverse logistics to the forefront of holiday season planning and stop viewing it simply as a mere cost center. Better reverse logistics planning brings multiple benefits:

Minimizing customer dissatisfaction:

One of the most important value propositions reverse logistics offers is a better customer experience and a second chance to make things right for the customer. Helping customers process their unwanted product as quickly and painlessly as possible directs them away from negative experiences and towards positive ones, exponentially increasing the odds they will remain loyal.

In my experience, it always helps to think of an unwanted product in a customer’s hands as sour milk: Moving unwanted items quickly out of a customer’s hands quickly before the stench can permeate will help to maintain a positive “freshness” in long-term customer value.

Solving returns for the omni-channel customer:

The “buy anywhere, return anywhere” mantra of omni-channel retail has introduced many inventory and restocking complexities: Customers often return unwanted gifts to suboptimal locations, moving the product further away from where it needs to be in its journey back through the supply chain and potentially to the next customer.

But incentivizing customers (e.g. coupons or preprinted return labels) to return items to optimal locations enables companies to reduce logistics costs and strengthen the likelihood of moving that merchandise closer to a second buyer at the original price. Customers who visit stores to return merchandise also become new opportunities for sales, regardless of what initially brought them in. Smart retailers capitalize on the in-store return as a second chance at a potential sale.

Detecting and deterring fraud:

The National Retail Federation reported that in 2014, returns fraud and abuse cost retailers more than $17 billion; and the problem just continues to grow. While it is possible to combat fraud by making returns more difficult for a customer bearing product in hand, this barrier can come at the expense of the customer experience and cost more in lost future sales than it saves in fraudulent returns. It’s a wise approach to analyze returns data and look for patterns in returns and identifying the few problem customers who regularly defraud the system to curb the problem while protecting returns policies that foster trust and goodwill among honest customers.

Aligning the supply chain around a happy customer:

Customers return products for three basic reasons: The product failed, it did not meet expectations, or they were unsure of how to set up or use their purchase.Luckily, all these situations have remedies. Products that do not perform well can be evaluated to determine the root cause of failure. If the problem is within the supply chain, it can be corrected; if the product is poorly designed, merchants can replace faulty products with comparable items. If the problem stems from mismatched customer expectations, many companies choose to solve that by developing multiple avenues to educate customers or beef up their product support.

Just as smart companies encourage customers to share their complaints so they can learn how to better serve those customers, they also leverage returns data as free market research by mining it for insights into customer preferences and behaviors. The data they gather also provides insights that can positively impact bottom lines through cost savings.

Determining the root causes of returns and capturing this data helps reveal and track the exact problem in need of resolution.

Saving the earth while cutting costs:

Reverse logistics processes, particularly in the fashion or high-tech industries, must maximize speed and agility. Apparel that makes its way back into full-value inventory before it falls out of fashion allows it to steer clear of the clearance rack; cell phones that still have life in them can be repurposed as a refurbished item for a secondary sale.

Companies that are dealing with outdated products are best served by taking a proper and ethical approach to end-of-life product disposition. Without careful planning, a company’s hard-fought reputation and brand can be destroyed if they are not seen as good global citizens.

Even if a product’s technology is completely outdated, it is still best to make every attempt at recycling/repurposing product components for the secondary market. Some companies even go so far as to extract high-value and rare earth metals for re-sale instead of disposing them, striving to simultaneously save money and realize sustainability advantages.

Reverse logistics will probably never, and should never, replace the forecasting, pricing and selection decisions that drive sales and the forward distribution of products. However, returns have stories to tell, and unwrapping their value can drive industry profitability well beyond this holiday season.

Irv Grossman is the Executive Vice President of the Americas at Chainalytics where he is responsible for the delivery of strategy, design, and transformational consulting efforts for many of the world’s leading supply chains.  

In this article