Retail product returns are a crucial component in developing the relationship between a retailer and consumer. The return process is at the top of the priority list for retailers to build long-term relationships and establish loyalty. About 66% of consumers now review a retailer’s return policy before making a decision to purchase1. In 2015, 49% of online retailers surveyed now offer free returns, where the store pays the return shipping for unwanted items2. While retailers adjust their returns policies to either add new restrictions or offer new benefits, they look to their supply chain partners to ensure they have an advanced network in place to help ease the return process. As the holidays come to an end, retailers are expecting returns to drastically increase this year and more than 20% of all annual returns happen during this period3.
Retailers can never predict the number of returns to expect during this season. This is why retailers rely on their supply chain departments and logistics partners to handle the abundance of returns that are flowing in. Having a plan in place for your returned merchandise will create opportunities to optimize warehouse space. All retailers handle their returned merchandise process differently depending on their product mix and network design. Although there are plenty of different methods to managing returns, here are a few common ones that popular retailers use.
Dedicated Distribution Center
Some retailers choose to have an established distribution center solely to handle the flow of mainly online purchases. In this method, trained employees will determine which goods can be recirculated or rehabilitated to put them back up for sale. About 70% of returned merchandise can be suitable for resale and avoid markdowns or obsolesce. Having these locations can help retailers organize inventory and still have opportunities to make sales with goods that meet their expectations in a timely manner. This method can be handled by third party logistics providers that comply with the service and expectations of the retailers to ensure that the inventory quality upholds company standards.
Liquidate Entire Trailers
There are more traditional ways of managing returned inventory and that’s through liquidation options. Some retailers will lease trailers to sit on location distinctively for returned merchandise. Once trailers are full, entire trailers can be auctioned to bidders without checking the contents. The trailers are then shipped to those who win the bid. Bidders will, in turn, resell the items in other stores. Usually, the contents that are on liquidated trailers are seasonal goods that are not as valuable after the holidays.
Liquidating merchandise is a conventional method to returns, but is slowly being eliminated because of the return policies retailers are providing for their consumers. In this method, retailers rely on third party platforms to resell returned items online, in some cases, close to full price. In this method, shippers need to have a separate network in place to redistribute merchandise that is being resold through the third parties. They are still making a profit on the items but do not have as much control of the inventory as they would in a dedicated distribution center.
The post-holiday season marks an integral time for the retail industry and its supply chain. It’s an opportunity to replenish inventory and still have an opportunity to make a profit on returns before seasons change and merchandise is rotated. With such a small window of opportunity, retailers should have a plan in place to strategically move returns and replenish inventory to continue to contribute to their sales and customer service goals.