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Reverse Logistics

Sustainability in Reverse Logistics: Advancing Retail’s Circular Economy

American culture, with its deep roots in consumerism, has entered an era of hyper-consumption. This shift has been propelled by the convenience of online shopping. The pandemic further catapulted our population's inclination towards consumerism with the normalization and popularization of eCommerce, making online shopping more than just a convenience but a staple in everyday life. The rise of eCommerce giants like Amazon and the two million merchants that sell on Shopify have played significant roles in further encouraging gluttonous consumer habits where shoppers can buy—and return—anything, anytime, from anywhere with a simple tap on their devices. This increase in consumption has led to a corresponding surge in returns, bringing along with it a host of environmental and financial challenges.

Global perspectives and the cost of returns

To put it into perspective, in Japan return rates are a meager 3%, in Germany online shoppers return 11% of purchases, whereas in the United States, according to Shopify, online returns vary between 20% to 30%. In 2023, total retail sales in the U.S. reached $7.24 trillion, of which $1.12 trillion accounted for eCommerce sales. Applying the above return rate to eCommerce sales, this translates to between approximately $224 billion and $336 billion of eCommerce merchandise being returned in America, in just the last year. 

As eCommerce sales continue to grow and take up a larger slice of the total retail pie, the challenge of returns will only become more pronounced. Retailers will face increased pressure to streamline their reverse logistics processes, balancing customer satisfaction with the need for sustainability and cost efficiency. The escalation of returns can impact profit margins, resource allocation, and inventory management, necessitating innovative solutions to mitigate the ripple effects throughout the supply chain. This escalating issue calls for a strategic approach that includes customized return policies, quality control measures, and a shift in consumer culture towards more mindful purchasing behaviors.

In a recent story published in The New Yorker by David Owen, he explores the repercussions of our burgeoning return culture in the article “What Happens to All the Stuff We Return?” Owen reveals how online shopping has revolutionized consumer behavior and birthed a lucrative industry out of 'reverse logistics.' Owen notes a stark national contrast, highlighting that while Americans have become notorious as the world's leading refund seekers, Japanese consumers rarely return purchases, as mentioned above.

goTRG’s CEO, Sender Shamiss, recently talked with Financial Times reporter, Joe Miller, on the topic of U.S. retailers experiencing severe ‘return anxiety’ considering the annual retail value of returned goods is approaching $1 trillion. While retailers are grappling with how to navigate a broken system brazen with ‘bracketing’—ordering different sizes to keep the best fit and sending the rest back; and ‘wardrobing’—buying something with the intention of returning it after wearing/using it, they continue to experiment with different returns policies. ‘Returnless’ refunds have become a popular alternative for American companies as our Returns Report: 2023 Holiday Predictions surveying more than 500 US-based retailers found that 60% offer ‘keep it’ refunds to minimize shipping and processing costs, especially during peak holiday shopping seasons.

The price of consumption

In the face of escalating costs and operational complexities associated with product returns, retailers are increasingly adopting returnless refunds or keep it policies. This trend reflects a growing recognition that the multifaceted burden of processing returns—spanning labor, time, and logistics—often surpasses the value of the returned items themselves, compelling businesses to seek more cost-effective solutions. 

Product returns introduce a complex layer of cost and logistical challenges, specifically involving the reintegration of returned items back to inventory. This involves the direct handling and processing of returns, as well as the capital that is consequently tied up while returned merchandise goes through the nuanced process of being restocked. According to goTRG’s 2023 Spring Survey: The Cost of Retail Returns, a notable 53% of retailers reported that less than half of the returned items are immediately restocked upon receipt. In addition, holding, storage, and transportation costs escalate as these items await resale, and the labor costs increase with the necessity for meticulous warehouse order-management. The true cost of consumption and subsequent returns resonates profoundly with retailers and manufacturers absorbing the impact. This extends beyond mere financial strain, manifesting as a significant environmental burden due to the extra resources consumed in the lifecycle of a returned product.

Due to the above costs and logistical burden, a significant portion of returned products find their way into landfills. In 2022 alone, retailers sent over 9.5 billion pounds of returned products straight to a landfill, determining it to be more economical to dispose of these goods rather than to reprocess and resell them, especially in the absence of a robust and effective reverse logistics service provider.

Reverse logistics as the solution for sustainable eCommerce

In recent years, reverse logistics has become instrumental in promoting sustainable eCommerce by offering a tactical response to the increasing volume of product returns. A comprehensive strategy for reverse logistics and returns management not only necessitates the refurbishing of products for resale, thereby extending their lifecycle, but it also concurrently serves to minimize waste and enhance profit recovery. This dual approach not only mitigates environmental impact but also reinforces economic viability for businesses navigating the complexities of returned goods. 

With the escalating rate of online returns, a robust reverse logistics strategy becomes not just beneficial, but necessary for sustainable business operations. Returns, if not managed efficiently, can significantly erode profits and harm the environment, demanding a comprehensive post-purchase experience that streamlines the journey from returns initiation to resale. The foundation of a sound reverse logistics framework is anchored by the seamless integration of an intelligent returns management SaaS with an eCommerce platform, and, for omni-channel retailers, in-store Point of Sale (POS) systems. This synergy is crucial for making informed disposition decisions from the moment a return is initiated that not only enhance customer satisfaction but also bolster revenue and operational efficiency. However, the integration alone isn’t sufficient; it is imperative to align product dispositions with the nuanced purchase-and-sale policies that exist between retailers and vendors. This requires a sophisticated contract management system, tailored specifically for handling returns and connecting the dots across the entire reverse supply chain.

To further solidify their reverse logistics strategy, retailers should first focus on implementing an advanced SaaS with Intelligent Disposition and Pricing Engine competencies that can make real-time decisions on the most profitable and sustainable path for each returned item. Recognizing the intricacies involved in this process is crucial, as it sets the stage for efficient downstream operations. Building upon this foundational system, the inclusion of a Reverse Warehouse Management System (RWMS) becomes the next logical step. An RWMS that surpasses traditional warehouse management functionalities can address the unique intricacies of returns management, such as restocking, vendor returns, inspection, repair, and refurbishing, ensuring that returned items are swiftly processed and adeptly reconditioned for their second life on the shelf.

The journey of a returned product does not conclude with its arrival at the distribution center; it extends into ReCommerce and participation in the circular economy. For items that cannot be relisted on their original sales channel, alternative ReCommerce channels can be leveraged, such as liquidation, wholesale, or direct to consumer. Retailers can further benefit from employing specialized reverse logistics software that can disseminate returns, as well as overstock inventory, across an extensive network of third-party retail marketplaces. In addition to these capabilities, a successful reverse logistics operation will integrate with a host of other systems, such as CRMs, ERPs, and transportation services, to create a cohesive ecosystem that supports every step of the returns process. These integrations allow for greater visibility, tracking and control, to ensure that returns are not just a cost of doing business, but an opportunity to improve customer loyalty, reduce waste, and drive revenue.

Just as businesses today recognize the indispensability of cybersecurity specialists to safeguard their operations, retailers must similarly acknowledge the critical need to collaborate with specialized service providers for reverse logistics. Yet, a significant number of U.S. retailers, even among the largest, are yet to establish the requisite infrastructure to effectively participate in the circular economy. Hence, forging strategic partnerships with specialized returns management service providers adept at navigating the complexities of the post-purchase and returns process is crucial, not just for the longevity of eCommerce businesses, but also for the health of our planet.

Participating in the circular economy as part of your returns strategy

The concept of a circular economy is revolutionizing sustainable business practices globally, particularly in eCommerce. Integrating reverse logistics as a priority function within the business model is pivotal to efficiently manage the complexities of both forward sales and returns. The traditional linear model and flow of goods to consumers and back to retailers is flawed on both an economic and environmental level. To integrate into the circular economy and minimize waste, retailers can adopt a three-step model for efficient returns management as outlined in goTRG’s 2023 Impact Report:

1.     Intelligent Analysis for Disposition: As mentioned above, implementing a system that can integrate with an eCommerce site or in-store POS system is essential. Upon receiving a return, the system should assess various factors such as the item's condition, seasonality, size, market demand, handling costs, the customer's returns history, and market prices. This analysis allows the retailer to determine the most profitable and sustainable outcome for each returned item.

2.     Returns Centers that Provide Value-Added Services: Partner with a robust network of dedicated returns centers where items can be meticulously assessed and categorized upon their arrival. The Intelligent Disposition Engine we mentioned earlier would assess the condition of the item and the most efficient and lucrative subsequent steps—refurbishing, data wiping (for electronics),sanitation, or repair. The Pricing Engine would scrutinize the costs associated with these actions. A sophisticated, data-driven SaaS technology platform is essential for determining the most economical and efficient path—minimizing touches while maximizing recovery. This tailored approach ensures each item is returned to an optimal state for resale, which aids in waste reduction and enhances profit recovery.  

3.     Optimized Resale Strategy: Once items are refurbished or deemed suitable for resale, they should be restocked or relisted on the original sales channel to maintain brand consistency. For items that cannot return to the primary market, leveraging a network of alternative channels such as liquidation platforms, wholesale outlets, or direct-to-consumer marketplaces, can ensure that each item finds a buyer, thereby reducing waste and recovering value.

By adopting this model, retailers not only participate in the circular economy but also enhance their sustainability efforts and contribute to waste reduction. Our 2024 Sustainability Report conducted in partnership with leading trade publication, Supply Chain Brain, found that an impressive 68% of U.S. retailers acknowledge the critical importance of incorporating sustainable practices into their returns process.This finding underscores a pivotal shift in the industry, as retailers actively engage in the circular economy, striving to reduce waste and reap the benefits of environmental stewardship. Further highlighting this trend, a commanding 84% of retailers recognize that their customers place a high value on sustainability, suggesting that consumer demand is a driving force behind these green initiatives. This is further corroborated by the 80% of retailers reported that they have noticed a shift in consumer attitudes towards purchasing second-hand or used items compared to previous years, with 48% indicating that there was a stigma in the past around buying refurbished products, but it is increasingly becoming accepted and normalized. We see this stigma rapidly dissolving as buying refurbished becomes not just a choice of value, but a badge of conscious consumption.

Retailers are not merely adapting to this change; they are leading the charge by embracing and enhancing sustainable return processes, thus catering to a clientele that is increasingly aware and accepting of the benefits—both financial and environmental—of buying refurbished. This dynamic shift is not a mere trend but a testament to a collective movement towards a more sustainable and responsible retail ecosystem.

How retailers can incorporate sustainable practices into their daily operations

Retailers can incorporate sustainable practices into their daily operations through a combination of strategic planning, employee training, and customer engagement. Here are some ways they can do this:

·     Sourcing and Supply Chain: Choose suppliers who prioritize sustainability, including those who use environmentally friendly materials and processes. Retailers should also look to consolidate supply chains where possible to reduce carbon footprints.

·     Eco-friendly Packaging: Use recyclable or biodegradable packaging materials and minimize the packaging used to reduce waste.

·     Energy Efficiency: Implement energy-saving measures such as LED lighting, energy-efficient appliances, and smart systems for heating, cooling, and lighting.

·     Waste Reduction: Encourage a culture of waste reduction by recycling, reusing materials, and minimizing single-use products in stores and offices.

·     Sustainable Products: Offer a range of sustainable products to meet growing consumer demand for goods that are made ethically and sustainably.

·     Education and Training: Train staff on sustainability practices and the importance of their role in implementing these practices.

·     Green Shipping Options: Provide customers with green shipping options that offset carbon emissions or use eco-friendly transportation methods.

·     In-store Initiatives: Encourage customers to bring reusable bags, participate in recycling programs, and support local sustainability initiatives.

·     Digital Operations: Reduce paper use by digitizing operations, like using electronic receipts, and manage energy consumption of digital infrastructures efficiently.

·     Carbon Offsetting: Invest in carbon offset programs to balance out the greenhouse gas emissions that the business cannot eliminate.

·     Water Conservation: Install water-saving devices and manage water resources carefully, especially in areas like restrooms and garden centers.

·     Community Involvement: Engage with the local community on environmental projects and support local environmental non-profit organizations.

·     Sustainability Reporting: Regularly measure and report on sustainability initiatives to monitor progress and make improvements.

·     Review and Adapt: Continuously review practices and adapt to more sustainable alternatives as they become available.

Implementing these sustainable practices requires commitment and may involve initial investments, but it can lead to long-term cost savings, an enhanced brand reputation, and a positive impact on the planet.

How retailers can educate shoppers to help reduce returns

Retailers can also play a pivotal role in curbing the high return rates by implementing educational strategies aimed at fostering a more conscious consumer mindset. With 85% of retailers from our 2024 Sustainability Survey stating that they believe consumer education plays an important role in promoting sustainable returns behavior, here are some approaches companies can take to enhance their consumer education initiatives:

1.     Research: Encourage customers to take the time to conduct due diligence and research before making a purchase.

2.     ProvideDetailed Product Information: By offering comprehensive product descriptions, sizing guides, high-quality images, and customer reviews, retailers can ensure that shoppers have a clear understanding of what they are purchasing.

3.     Virtual Try-On Technology: Investing in augmented reality (AR) apps and tools that allow customers to visualize the products in their space or on their person can help in reducing uncertainty that leads to returns.

4.     Encourage Mindful Shopping: Retailers can create educational content around the impact of returns on the environment and the importance of thoughtful purchasing decisions.

5.     Incentivize Sustainable Choices: Offering discounts or rewards for customers who choose to keep their items or who package returns using sustainable materials can encourage customers to think twice about if and how they return items.

6.     Streamline Communication Channels: Making it easy for customers to ask questions and receive prompt responses about products can reduce the likelihood of a mismatch between expectations and the actual product.

7.     Flexible Exchange Policies: Encouraging exchanges over returns can keep the products within the retail cycle and reduce the carbon footprint associated with returns.

8.     Transparent Sizing Information: Since clothing returns are often size-related, providing precise sizing charts, fit predictors, and feedback from previous customers about the fit can minimize size-related returns.

9.     Customer Education Campaigns: Running campaigns that educate consumers about the environmental and economic costs of returns may encourage them to make more considered purchases.

Returns are a complex two-way street and consumer education plays a critical role in the retail industry's pursuit of sustainability. Most consumers assume that their returns are simply restocked and resold. Contrary to mainstream belief, our 2023 Spring Survey: The Cost of Retail Returns reveals a different reality with 52% of retailers having to handle (touch) returned items anywhere between three to eight times. Each touch is costly and takes up resources. For instance, anything that contains data, from smartphones and watches to even some children's toys, must undergo rigorous data wiping and sanitization processes to ensure customer privacy and security before being considered for resale. Furthermore, items may need to undergo repairs, refurbishment, or repackaging, all of which add to the complexity of reverse logistics. Educating consumers about the intricate journey of returned items can foster more mindful purchasing and returning behaviors, which is an integral component of the industry’s initiative to meet sustainability goals. By shedding light on these processes, retailers can engage customers in their efforts to minimize waste and promote a more circular economy.

The Future of Retail Sustainability

As return rates continue to climb, the need for innovative and sustainable solutions has become crucial. Retailers are not just seeking transactional partners anymore; they are in search of collaborators who understand their challenges, share mutual environmental goals, and offer tailored solutions with the perfect balance between technology and touch.

At goTRG we are committed to upholding our values and to providing the most innovative solutions for our clients and stakeholders. In 2023, we worked hard to quantify environmental data that allowed us to provide indicators for our Impact Report based on costs, waste and greenhouse gas (GHG) emissions savings.

As we move forward, we will continue to listen, adapt, and evolve, ensuring our operations are not just financially profitable, but also environmentally beneficial. The journey of returns management is just the beginning and with the right partnerships and aligned values, the future looks promising.

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