by Craig Sears-Black
If a product has a full-price shelf life of three months, can retailers really afford to have it hidden in the supply chain for six weeks?
Now more than ever before, there are more opportunities for returns to be pushed back into the supply chain. Most retailers are well aware of the dangers that this poses, but they have difficulty in uniting reverse logistics in the same way that they are trying to unite sales.
Retailers are also beginning to look a lot more adventurously at returns, as they are no longer seen as a cost centre or the last concern in retail and distribution. With the right technology to manage the complexity, a retailer can offer a returns policy that will create an essential competitive advantage.
Minimising the time to convert returned goods into profitable saleable inventory gives retailers maximum opportunity to convert the return into a sale, at full price. If an item of clothing is unavailable for sale for six weeks or more, it could well be out of fashion and have to be discounted by the time it’s made available for sale again. The subsequent price reductions dent profitability.
Visibility of the whole supply chain gives retailers a range of options for what to do with returned items. Order management software means that goods being returned can be immediately designated as ‘available inventory’ and called upon to meet an existing order or diverted to wherever demand is being detected across the supply chain.
Equally, if a product is close to the end of its full-price lifecycle, store employees can identify where else in the network – either other stores or online – the product can be sold full-price, based on demand and stock levels.
Many online retailers have ceased to offer free returns to reduce the cost of processing, which can itself be an incentive to buy online. To offset this, there are companies that offer ‘collection services’, whereby customers can opt to pre-pay for returns. Without taking this service up, they’re responsible for covering the cost themselves.
Recent research by Fits.me found that five per cent of shoppers return items that they bought in a store, whilst 21 per cent return items that they buy online. Online retailers need to offer a simple and cost-effective returns process, otherwise they will miss sales, or even gradually lose customers. For retailers selling through online channels only, this is particularly poignant. As the high street shop become a tools for omni-channel retailers, pureplay ecommerce companies need to innovate to keep a lid on their costs.
The cost of fulfilment for these pureplay retailers is often very high – and the cause of loss-making transactions. To have returns not only hurts the sales numbers, but it’s a big cost to have to write-off, that they cannot afford.
The optimisation of reverse logistics, primarily through greater visibility, ensures goods are stored and redeployed to maximise profitability.
Often, this requires a change in the technology used by the organisation. However, there is an element of cultural and process change that needs to happen as well. Once this mix of factors is perfected, companies will maximise on-shelf time and availability of all products, returned or otherwise. The outcome is greater profitability, competitive advantage and improved service.
Craig Sears-Black is UK managing director at Manhattan Associates