Key Takeaway

• E-commerce is growing like crazy, and it’s impact is being felt in supply chain logistics.
• The heavy reverse flow of returns are posing new problems for retailers who traditionally only dealt with in-store returns.
• Amazon and other players are devising creative solutions to reverse supply chain issues, but it will be interesting to watch as this plays out.

E-commerce is a ubiquitous part of retail today, and it’s having a profound impact on the supply chain. Specifically, it’s creating a heavy reverse flow. Many online retailers offer free shipping and returns, and this encourages more purchases, but it also greatly increases the number of returns.

Facilitating this and handling the merchandise that’s being returned is what makes up the reverse supply chain. Businesses are grappling with the task, and many have come up with innovative ways to save money in the process. Technology can be used to streamline the reverse supply chain and provide exceptional customer service.

Before this shift in e-commerce, customers would be more hesitant to order things online unless they were fairly positive they’d be keeping them. They were understandably hesitant to risk extra cost in case the item had to be returned.  In the case of clothing retailers, for example, who knows how many potential sales were lost when customers felt unsure about whether a selected item would fit.

Now, that uncertainty does not come with a price tag. Online retailers have made it simple and free to return unwanted items. True to form, Gen Y have taken this situation and run with it.  A friend from that generation tells me that it’s very common to buy 10 items, keep the 2 they like and return 8. Shopping online is easy and convenient, and returns are amazingly simple. Many retailers provide prepaid shipping, and carriers will pick up packages at your door. This beats shopping in-store for many busy consumers.

Retail giant Amazon leads the way in innovative policies for online shoppers. Their Amazon Prime provides free shipping and returns. They also have a feature called “no rush” shipping, which gets purchases to you in about a week and earns you a $5.99 credit! So you actually get paid to settle for (relatively) “slow” shipping. I call this the get more shit model, since the credits can be used to make more purchases at Amazon.

All of these ideas have fueled the tremendous growth in e-commerce in recent years, but it’s also creating a multi-billion dollar problem for retailers. Business Insider reports that reverse logistics eat up 10-20 percent of annual profits for retailers. Taking an omni-channel approach is one way that they are reducing the costs from returned goods.

The task really amounts to determining the most cost-effective way to handle the returned merchandise and utilizing integrated technology to track online and offline purchases in the same system.

There are three predominant methods for handling returns: resell, recycle, or refurbish. Companies should have clear and efficient methods in place for determining the appropriate action for a given return and for keeping the process moving. In this way it’s possible to recover up to 32 percent of the total product cost.

Another approach is to work toward reducing the number of returns and the costs of shipping that the retail must bear. Amazon (again) is trying an idea that seems geared toward minimizing the cost of returns with pick-up locations. In this model customers order merchandise online and then pick it up in-store. They’re even offering this service for groceries at 3 locations on the west coast. Pick-up points and Amazon Lockers are other options available.

Another trend that minimizes returns? The subscription model. Gen Y has been quick to accept the subscription model as part of their shopping habits. Need dinner? There’s Blue Apron or Plated, which will send you recurring shipments of fresh foods and the recipes to create your dinner. Clothes? There’s Stitch Fix for women and Bombfell for men. You can even join subscription services for wine.

As reverse logistics continue to impact the way that online retailers do business, it will be interesting to watch the creative solutions companies will create. I believe this is just Act I.