Tapping into Hidden Revenues with Returns Management

Reverse Logistics Magazine, March/April 2007
Retail industry analysts and leading academics agree, merchandise returns now amount to more than $100 billion per year, with returns management draining away as much as 35% of potential retail profits every year. In a tough economy where companies face increasing pressure from competitors and growing demand from customers, recovering that cost is critical to bottom-line growth and longterm competitive advantage. To combat these challenging issues many retailers are transforming their returns process, seeking cost reductions by taking a true end-to-end supply chain view of their “reverse” supply chain.

For example, many retailers (apparel in particular) have a very high percentage of returns that go directly back into inventory (return to stock). In fact, when viewed from the perspective of the fulfillment process, a company’s own return center can often be one of the largest “suppliers” it deals with. Taking this point of view on returns leads companies to naturally expect the same level of visibility, accountability, etc., that they have come to expect from other suppliers.
Today’s savvy retailers are discovering that the reverse supply chain is as full of opportunity as its forward-moving counterpart. By taking this novel new approach to returns, companies can gain benefits similar in size to those seen in the early days of supply chain management.
Real-Time Visibility

Increasingly, the Internet is being used to help automate reverse logistics management because its Web-based approach cuts costs and increases visibility into purchase and return behavior. According to Gartner Research, in online sales alone, automating the front end of returns offers an opportunity to reduce costs on returns as much as 73%. Automation provides insight into what goods are currently in the reverse supply chain, helping companies lower shipping costs and labor dollars and increase asset recovery.


Customer Care with a Personal Touch

Using a Web-based returns management  approach also allows retailers to electronically capture the reasons behind each return, gauge the perceived quality of a new product and evaluate their customers’ return habits, thus providing useful insight on shopper behavior. This tracking data is available in real time so retailers know within hours when a returned item is en route back to the company. They can use this data to start a dialogue with customers, such as an e-mail note thanking them for their business and offering incentives on future purchases.

Managing Returns for Speed-to-Revenue

Once returned merchandise reaches the return center, these assets can sometimes remain there without proper attention, losing value with each passing day. It is critical that retailers control the speed of the returns process to help their businesses recover assets and recoup lost revenue.

Control Shipping Costs
Shipping also contributes to the overall cost of the returns process. Controlling the transportation method used for a return can result in significant savings derived from carrier discounts. Additionally, shipping a prepaid return label with a return (or allowing one to be generated online from a Web site) presents the customer with an easy—and “cashless”— transaction. In this way, shipping costs are known and can be netted out of a customer’s refund.

Cross-Marketing Opportunities

With a better understanding of the returns process, it is easy to see how the benefits of a reverse logistics management solution can extend beyond initial asset recovery. By providing historical data and reports that specify which items were sold, which didn’t, how often goods were returned and why, a solid returns process can have a major impact on an overall logistics program. For example, tracked data can show which items customers are more responsive to, thus helping companies adjust inventory to increase sales and decrease potential returns.


Taking this a step further, the real-time information generated by an automated asset recovery system gives retailers opportunities for up-selling and crosspromotion. For instance, an individual customer who returned a green wool sweater because it was too scratchy may receive a 20 percent discount on a green cashmere sweater with a matching scarf.


An Afterthought No More
The visibility and automation gained through a reverse logistics management solution help streamline the returns process. As the overall number of customer returns logged continues to rise, it is not surprising that companies are investing more in their reverse logistics processes. Thus, taking a look backward at key logistics processes such as returns processing can actually help companies move forward and stay ahead.

Reprinted from ASSET 2.0, the Investment Recovery Business Journal, Vol. 4, 2007

© The Investment Recovery Association