Why Grinch-Like Policies Won’t Save Your Christmas Margins

Posted by Peter Nilsson on Dec 19, 2018 12:13:14 PM

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The holiday season is a time of giving and receiving; UPS alone is anticipating delivering about 750 million packages. However, if you work in retail, it is also the unenviable time of mass returns and exchanges. According to the 2017 Consumer Returns in the Retail Industry report, “Total merchandise returns account for more than $351 billion in lost sales for US retailers.”

In the era of liberal return policies, businesses must scramble to balance the demand for fast, free, and easy services with a sustainable logistical approach. The age of e-commerce is rife with conundrums; the volume of returns is rising, the cost of handling them is steeper, and the pressure to keep up with the Jones’ – that is, to maintain seemingly impossible standards – is mounting.

Is there room for a happy ending in this apparent catch-22?

Contending With the Amazon Effect

The world of e-commerce strives to create a buyer-utopia for consumers. As the economy of fast deliveries and hassle-free returns grows, customers increasingly treat it as the effortless affair it purports to be – for instance, purchasing several similar items at a time in varying styles, colors, and sizes, with the intent to send back what they don’t want. But there are no magical elves toiling behind the scenes, and on the flip side of every seemingly simple process lies a set of complex mechanics designed to sustain it.

Many reverse logistics models are still ill-equipped to shoulder the burden of these modern demands. The supply chain costs companies incur from growing returns are outpacing the rewards of providing such exceptional service. The holidays are especially brutal in this respect, as it’s difficult to resell seasonal merchandise, much less at the original cost.

So, what can be done about it? Strict return policies drive customers away but upholding the current standard seems to stand at odds with the ability to scale profitably.

Facing the Challenges

E-commerce-holiday-body-imageThere is a price to pay for giving customers what they want, when they want it. Some companies are encouraging individuals to return items in stores, as it’s less of an expense, or incentivizing fewer returns in general. Others are raising the requisite order minimums to qualify for free shipping and implementing stricter return policies – often to their detriment, as mentioned above.

These techniques, on their own, are somewhat akin to sticking a Band-Aid® on an open wound; they scarcely plug a margin leak at the expense of customer loyalty. E-commerce has irrevocably disrupted the market landscape and so must be tackled with an equally disruptive approach. The most enduring solutions are not those that avoid challenges, but that adapt to meet them head-on as effectively as possible

Many variables and complexities contribute to logistical nightmares: What do you do with a product that is returned? Does it require repair or repackaging? Can you resell it? Most major pain points stem from unpredictability. While the knee-jerk reaction is to limit returns – and therefore unpredictability – the savvier approach is to implement a system that demystifies much of the uncertainty.

Implementing a Savvy Solution

Just as the Internet paved the way for a buyer’s paradise, so too can technology remedy the challenges companies face in sustaining it. Automated systems provide convenient data for businesses to use during planning and execution. With insight into certain seasonal trends, like the percent of items returned and the time it takes to get them back, companies can factor related costs into their approach. Sellers can make up for lost margins, for instance, by securing special carrier rates or incrementally increasing the price of various goods around the holidays.

Real-time visibility through every step of the order flow empowers companies to manage their staffing effectively, accommodating various volumes of returns with minimal waste. Transparency and strong networks allow businesses to optimize which carriers they use, as well as consolidate multiple returns in a given area to save money. Similarly, with better channels of communication, organizations can determine the best uses for their returned products to derive the most value.

 

A catch-22 exists only where proper tools are limited, so as you enter the new year, take audit of the processes you have in place. Focus on strengthening your reverse logistics approach to increase efficiency and cut costs and waste. There is indeed space for a happy ending in this brave new world of e-commerce – but it won’t involve quick fixes, strict rules, or analog methods; it will call for an equally brave new system.

Topics: Reverse Logistics, Supply Chain Visibility, E-commerce Fulfillment, Omnichannel

 

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