E-commerce & FulfillmentFulfillmentModern ShipperNews

Return to sender: Holiday product returns will stress supply chains

Reverse logistics face a big test this holiday season

Much ado has been made about holiday sales, and for good reason –– this holiday season figures to be unlike any other as supply chain disruptions continue to complicate the path from retailer to consumer. But not enough emphasis is being placed on the other direction: returns.

The reverse journey from the consumer back to the retailer is arguably an even more arduous one, and it’s compounded by the fact that those returned products occupy the same supply chains as unsold products. With supply chains already stretched thin due to an unprecedented combination of high demand and heavy disruptions, adding returns to the mix could cause headaches for retailers and consumers alike.

According to a 2021 survey from Power Reviews, the majority of consumers value having an option for free returns, with only around 12% saying they would “never” return a product. Given that trend, it follows that most retailers would want to offer free returns, but it isn’t always so simple.

According to Mark Stanton, general manager of supply chain solutions at PowerFleet, the vast majority of brands have figured out how to make returns easy for the consumer, offering multiple options like in-store returns and returns via carrier (like FedEx or UPS) or other service (like the U.S. Postal Service). But not enough are focusing on what happens after the return.

Capacity constraints

Once a product enters the return process, retailers need to accept it somewhere within their supply chains. The goal for most retailers is to either repurpose the product to be resold at a different retail store or to hand it off to another retailer to be refurbished and resold at a cut price, but before that happens, they need a place to keep it.

Retailers can have consumers bring returns to physical stores, but they can’t hold those products there forever. They also can’t send returns back to the manufacturer except in certain situations, such as in the case of a warranty return. That leaves the retailer’s warehouses and distribution centers as the prime landing spots for returned products, but those spaces are already being pushed to their limits.

“There’s still a lot of ships off the ports of LA and Long Beach and others still waiting to offload product,” Stanton told Modern Shipper. “But that doesn’t mean that warehouses are empty, just waiting for stuff to arrive.”

Increasing warehouse capacity was a priority for brands well before the pandemic, and it’s only grown in importance as e-commerce volume has grown in size. But adding returns to the mix complicates things even further because retailers need to divide their attention between selling new products and repurposing old products –– all using the same supply chain.

“It becomes exceptionally more challenging at this time of the year through the holidays, because the sheer volume increases exponentially. … And they’re trying to manage this return process on top of their peak,” Stanton explained. “To say it’s chaotic is probably an understatement, honestly.”

Cost and visibility constraints

But the constraints on returns go beyond just capacity. Cost is also a major factor, so much so that some retailers are opting to send their customers a free replacement product on-demand rather than take on the cost of returns.

“The cost of bringing a product back can significantly outweigh whatever profit margin is on that product. So it’s actually cheaper or less expensive to ship a new one and not take the old one back,” Stanton explained.

He added the caveat that this is only the case for certain industries and products, but the financial cost of keeping the product in a retailer’s supply chain is growing as the volume of products moving through it increases.

Read: Mark your calendars: Holiday shipping deadlines you need to know

Read: Put on your ponchos: The new wave of e-commerce has arrived

COVID-19 and the emerging omicron variant are also creating costs for retailers, both directly and indirectly. Their impacts are most clearly seen in the processing stage of returns, during which retailers now need to spend time and money sanitizing their products, but they are also affecting consumer behavior. According to Stanton, concerns around COVID are making consumers less likely to want to purchase a repurposed or refurbished product, which could mean there is less of an incentive for retailers to offer returns in the first place.

Cost constraints for returns can also come in other forms; for example, any return that a retailer accepts but ultimately cannot hold within its supply chain has a high chance of ending up in a landfill, which creates a new set of environmental costs. And with sustainability becoming increasingly top of mind for shoppers, sending returns to landfills could also alienate their consumers.

Another issue retailers face when it comes to returns is maintaining visibility of their transportation assets, particularly chassis, to ensure that they are being used efficiently. According to Stanton, increasing the number of chassis can help alleviate some of the strain on a retailer’s supply chain, but an even better strategy is increasing the efficiency of each asset.

“We can throw more and more assets at these things, but that’s not necessarily the only answer,” he explained. “We have to do better with what we have and not just have more of what we have.”

And when it comes to chassis and other transportation assets, knowing where they are is only part of the battle. Location can give retailers an idea of potential delays, but just as important is knowing if the chassis is loaded, if its load is half or full and whether it’s in transit.

What it all means

In order for free returns to make sense for retailers, they’ll need to overcome the constraints of capacity, cost and visibility, but not all brands will be able to accomplish this. That could be a boon for consumers if more companies begin offering free replacement products as an alternative to free returns. But it also means that for consumers who would prefer to simply return the product, the option might not be available.

However, there’s an even greater impact on consumers that isn’t immediately apparent, and that’s retailers passing along the costs of congested supply chains to consumers.

“We’re paying for that service somehow,” Stanton said. “That retailer, that transportation company, that process has a cost. That cost comes back to us as a consumer, in some form or other.”

It’s not easy to see, but inflation is one of those costs — as the cost of moving goods through the supply chain increases, which will happen naturally as retailers take on more returns during the holidays, brands have little incentive to eat those losses themselves. The likely outcome? Retailers will raise the prices of certain products during the winter months.

Of course, nothing is set in stone, and retailers could still come up with a way to reduce the multifaceted burden of returns. But in all likelihood, reverse supply chain backups will take their toll and severely limit retailers’ ability to offer free returns and lower prices.

You may also like:

NFTs are coming to a supply chain near you

Blackstone group acquires 17.4 million square feet of warehouse space

Uber Eats partners with Hims & Hers, will deliver in 12 markets

The FREIGHTWAVES TOP 500 For-Hire Carriers list includes FedEx (No. 1) and UPS (No. 2).

Jack Daleo

Jack is a staff writer for FreightWaves and Modern Shipper covering topics like last mile delivery and e-commerce fulfillment. He studied at Northwestern University, majoring in journalism with a certificate in integrated marketing communications. Previously, Jack has written for Backpacker Magazine and enjoys travel, the outdoors, and all things basketball.