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Many Unhappy Returns

Tis almost the season of good will and celebration, which means that life is about to be hell for the poor souls that work in the logistics industry. I can almost hear the warehouse acapella group singing in harmonic irony, “Bah and Humbug to all.” Still as the delightful folk of Yorkshire are wont to remind us, “where there is muck, there is brass.” Lord only knows, the season of goodwill does generate a serious amount on muck in the form of outbound packages, wrapped in a considerable amount, of hopefully, recyclable packaging. This, in turn, leads us to the “R” word – the bane of online retail – “Returns”.

For retail e-commerce, twenty percent is the industry average of goods that are returned. For fashion retail that can jump to forty percent plus. This can spike further over the course of peak season, representing a significant business challenge and opportunity. In dollars we are talking BIG. Big enough to even catch the attention of the Midas-like Donald Trump. In 2018, the global value of returned goods is likely to be well over $500 billion. By 2021 global retail sales will be in the order of $5 Trillion, thus generating approximately $1 Trillion of returns. This is the sort of figure that is usually the preserve of government economists and people selling less salubrious products like illicit drugs, weapons or neatly packaged sub-prime debt.

It deserves to be taken very seriously indeed. It deserves to be planned for with great care. For retailers, there is the need to staff up in warehouse and store just to cope with the volume of outbound packages. In today’s omni-channel world, store operations management need to plan labour, based not just upon the anticipated volume of goods being sold in store but the outbound and inbound packages that need managed, if shipped from warehouse to store or picked and packed for collection or shipping from store. At season peak, this may change from being a relatively trivial task to one that may impinge on store associates’ ability to sell effectively and compromise the in-store customer experience, due to staff diverted to perform part-time warehouse tasks. In peak season, stores take on the operational characteristic of London Heathrow, permanently teetering on the edge of failure.

Best practice today may be based upon anticipated year on year growth at each warehouse and store. However, I wonder how many retailers have actually captured past years data and plan for the surge in returns and shipping within stores? For those excellent retailers that do this, there is still the “Heathrow syndrome” to deal with – teetering on the edge of failure due to unplanned for issues. Local weather and events can be the tipping point. I doubt that more than a few retailers in Europe have systems that take these into account or have the ability to perform short term, or reactive/recovery planning at a local store level. Identifying short-term localised issues will definitely lead us from the domain of traditional planning processes and systems, into solutions incorporating Artificial Intelligence.

For returned goods, there are many potential decisions to make on how to process them.

  1. Record the products, process refunds or exchange of goods and add to store or warehouse inventory?
  2. Return from store to warehouse?
  3. Recondition goods before selling?
  4. Move to an outlet store and/or discount?
  5. Destroy goods?

There is certainly industry wide pressure to avoid destruction of goods and move towards recycling goods that are not fit for resale or charity. You only need to think about the furore over Burberry destroying goods, or the recent high profile environmental focus on retailers shirking their “duty” to recycle and indeed use less environmentally damaging raw materials when manufacturing clothing.

So as peak season looms, with logistics teams around the world reaching for painkillers and stress relief, take a time-out and think about how next year might be better managed by improving planning processes. There are opportunities to improve Demand Planning by taking into account increased availability from returned goods, Labour Planning based on not just selling but also processing returns/shipments and how Order Management might help meet customer service levels and avoid the costly destruction of brand equity by failing to meet your customers’ expectations.

I wish you all a happy and safe holiday season.

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