Reverse logistics challenges for retail supply chains

By Camila Affonso, with contributions from Eduardo Muniz, of Massimo Consulting.

Returns-related reverse logistics is becoming increasingly important in retail, whether due to changing consumer behavior — a shift accelerated during pandemic-related mobility restrictions, when the customer's home became the fitting room — or due to the impact of this process on the customer journey. The fact is that 10% of items purchased online are returned to stores, whether through exchange or return, and 27% of consumers would pay more if shipping were included in the return process. The data comes from the Brazilian Reverse Logistics Council.

On one hand, it is essential to offer a return and exchange system that does not negatively impact the customer journey. Also according to the Brazilian Reverse Logistics Council, more than 75% of customers research the details of the return or exchange process before completing their order, and this information is decisive in whether they proceed with the purchase. Return efficiency also contributes to increasing customer lifetime value (LTV) — a concept that estimates the total value a customer spends with the company over their lifetime — and increases the confidence to buy an item when unsure of the correct size, for example. This, in turn, increases the likelihood that the customer will return. Meanwhile, 47% of Brazilians who responded to an e-Bit survey said they started buying less after problems with online product exchanges.

But on the other hand, reverse logistics costs are high: beyond transportation itself, returned products take up 20% more space, according to data from Stord, because they require a segregated area, and they require a trained team to perform quality screening, assessing whether the returned product complied with the company's return policy and whether it is in condition to go back on the shelf. Cleaning, minor repairs, or relabeling may be needed, among other things. Up to 50% of returned items are discarded, according to Nikki Baird, vice president at Aptos, a retail management software company.

The fashion and accessories sector is one of the hardest hit by exchanges and returns, and according to Send4, 43% of exchanges occur due to incorrect size or color. Some consumers already order the same clothing item or pair of shoes in two or three different sizes. Upon receiving them, they try them on and return the ones they didn't like.

Companies face a major challenge: offering a simple, convenient exchange and return service while keeping costs under control. This requires an in-depth study of reverse logistics needs and costs for each sector and region, and the development of efficient return plans. There are several variables to consider, and there is still room for improvement in this process within Brazilian retail. Planning these activities becomes complex due to the need for different procedures that address the particularities of the items in the portfolio — for example, tops and footwear require distinct processes. Multi-brand retailers need to train their screening teams to provide specialized handling for each brand-and-product combination.

Analyzing the costs of this entire operation, factoring in the logistics specifics of each region of the country, will form the basis for strategic decisions, such as whether the brand will collect all returns or choose to pick up only in certain locations. From there, it is necessary to structure the reverse logistics process, size the team, map the operation's total cost, plan facilities, design the logistics network layout, and organize the process, among other steps. Depending on the situation, it is possible to develop company channels to facilitate and enable returns, such as a locker where the customer can drop off the product, or to establish partnerships, such as with transportation companies. This is a customized strategy that needs to be planned end to end, aligning the marketing, logistics, product, and operations areas.