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Reverse logistics will trash your inventory plans Featured

returned goodsIt’s the 4th quarter of the year when retailers are finalizing their stock in anticipation of the holiday season. Historical trends set the stage for quantities, locations, and pricing but a major shift in how consumers consider their own purchase strategies will play havoc with retailers. The problem is with product returns and how consumers now consider their purchases to be temporary.

Thinking forward

Forward logistics is what most people think of when they contemplate stocking warehouses. Buyers project sales for the period, place orders, stock distribution centers and local warehouses, stock shelves in stores, and eventually move those products out the door as sales to consumers. But those consumers have a different view.

Retailers have pushed the delivery cycle to shorter time frames as consumers expect their online shopping experiences to match or exceed their in-store activities. For items like clothing that means they can select and item like a shoe or a shirt and try it on. They can keep trying different styles and sizes for as long as they like till they find the right one, then finalize their purchase.

This works fine in the store where merchandise never leaves the premises and the biggest headache is having a sales associate put the items back on the shelves for the next customer to try. But with online purchases being delivered within 1 or 2 days, and increasingly even less time, consumers are treating their online shopping carts just like racks in stores.

They order a dozen items of varying size, color, and style to be delivered to their door then try them on and return those they don’t want. Retailers have relaxed their return policies to allow and even encourage this style of shopping, even paying for shipping in both directions. The end result is that consumers are finding it even more convenient to shop online than in stores where they need to contend with uncomfortable changing rooms and lack of privacy when they want to model their prospective purchase to a friend; something they can easily do leisurely at home.

The reverse problem

Reverse logistics is a much messier proposition than forward logistics because of both the scale and the lack of coordination. Thousands or individual items are sent in unknown condition to return warehouses where they need to be processed, reviewed, and dispatched. CNBC reported the probelm to cost retailers more than $1.75 trillion and growing each year.

The problem is one that is not going away or getting easier as consumers shift toward online purchasing. And as holiday deadlines loom closer, shoppers can compress their buying time to the last few days, depleting stocks at retailers and keeping their purchases at home till well after the holiday has passed. Meanwhile items that are out of stock will be returned when the demand has vanished.

Technology may have some answers to this problem in the form of advanced analytics and prediction but ultimately consumers are driving the problem because of their lack of urgency in making decisions and the need by retailers to meet consumer demand. What we may find is a ‘post-holiday’ sales cycle that attempts to capitalize on the refilled inventory from consumers. But the problem remains in how retailers and their suppliers can effectively process all those returns that were sold at margins that don’t support the expenses of repackaging and and selling them a second (or third) time.

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