The Expansion of Ecommerce Is Impacting Reverse Logistics Practices

The breathtaking expansion of ecommerce has had a knock-on effect on many periphery industries which have all had to change their game to keep pace with the new status quo.

Ecommerce sales are predicted to hit $4.5 trillion by 2021 - nearly double the figure from 2017 - and it's estimated that 95% of all purchases will be made online by 2040. With so much growth expected in the future, the need for others to adapt is only going to get stronger as time goes by.

The reverse logistics industry is just one such space, with ecommerce bringing new challenges to those departments or service providers responsible for processing customer returns. However, the industry is meeting the challenge. The global reverse logistics market generated $415.2 billion in 2017 and is expected to reach $603.90 billion by 2025, growing at a CAGR of 4.6% from 2017 to 2025.

Reverse Logistics

As ecommerce grows, naturally, so too will the need to facilitate returns. In fact, the need for returning products becomes even greater with ecommerce as customers often don't know exactly what the product will look like until they're holding it in their hands. This is especially true for clothing retailers in the ecommerce space, as customers can't try clothing on before deciding whether to make a purchase.

This leads to a scenario where ecommerce brands cannot consider reverse logistics an afterthought. Instead, they must approach returns as an integral part of their business model. Many customers now check what the returns policy of a company is as part of the decision-making process, meaning brands without a good strategy are likely to miss out on business.

"Reverse logistics has suddenly become a big service. It was not there in the pre-ecommerce era. It's new for all of us and the segment is still in a nascent stage," said CEO of Mahindra Logistics, Pirojshaw Sarkari.

With so many products now being returned due to ecommerce, the focus of brands must be on market readiness and ensuring the process of returns is as expedient and efficient as possible - not just from a customer service standpoint, but also in the back room. Reverse logistics are typically more expensive to companies than forward logistics, so returns need to be processed as cheaply as possible with the ultimate goal of maximizing the value of the returned product.

"In the U.S. alone, it's estimated return deliveries will cost $550 billion by 2020, 75.2% more than four years prior," reports Shopify. "Worse, that number doesn't include restocking expenses nor inventory losses. Nailing down exact numbers on return rates is notoriously difficult, but compiled data from separate sources paints a bleak portrait, especially for online retailers."

Returned items which cannot be sold on are dead stock, so anything which can be done to increase the number of products that can be resold will have a direct impact on a company's bottom line.

Ecommerce Expansion

The average returned product takes around two weeks to return to inventory - assuming it's fit for resale. And the longer a product is left lying around, waiting to be assessed, repackaged, restocked, etc., the more chance there is of it getting damaged or going out of date before the process has been completed.

Roughly five billion pounds of returned items - not to mention the waste from packaging materials - end up in the trash, making returns a major contributor to both landfills and dents in profits.

This is leading many brands to devote resources to opening separate departments which are entirely dedicated to handling ecommerce reverse logistics. By doing this, these forward-thinking companies are ensuring the large volume of returns coming through ecommerce channels are processed as quickly as possible and with as little disruption to other operations as can be reasonably expected.

The investment can be significant as well, with these departments often requiring expanded warehousing space and an increase in staff. This demonstrates just how important and cost-saving - in the long term - it is to adapt your brand's reverse logistics infrastructure to cope with the increase in returns brought about by the expansion of ecommerce.

Final Thoughts

Ecommerce is not going away, and any brands which either carry out online sales or work with periphery companies who operate within their supply chains need to expand alongside it. Those who do will stand the best chance of not becoming overwhelmed by the increase in returns.

"Businesses are adding workers, increasing warehouse space, and establishing separate departments to handle reverse logistics," writes Shopify. "Returns are the new normal and central to customer experience. But they don't have to be a plague. In fact, how you deal with returns - before and after purchase - can differentiate your brand, create a competitive advantage, and even make you more profitable."

Ecommerce expansion and its effect on reverse logistics are set to be hot topics at Consumer Returns Management 2019, taking place this October, at the Hyatt Regency Austin, Texas.

Download the agenda today for more information and insights.

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