Can returns be a standalone revenue stream for Logistics Service Providers (LSPs)?

E-commerce is flourishing, which is good news. The volume of returns is also increasing with it, which doesn’t sound all that good. The wrong product fit, damaged goods or simply a change of mind are enough to get a consumer or business to initiate a return. Even though returns are the most common component of reverse logistics, many retailers struggle to handle them efficiently.

The return rate of e-commerce purchases is three to four times higher than that for brick-and-mortar-purchases (Reverse Logistics in the “Age of Entitlement”). For retailers, the priority is to reduce the costs associated with those returns. Since returns are not something retailers make money out of, they will hardly be enthusiastic about paying the regular charges to logistics service providers (LSPs) who handle returns. They will negotiate hard. Many LSPs are yet to find a stable strategy to handle returns because of ad-hoc processes and the unpredictability involved.

So, what can LSPs do to counter this? How can they take charge of the situation and deliver value? LSPs are actually in a unique position to achieve differentiation in the world of returns. If they position reverse logistics as a part of a successful growth strategy for retailers, they can help them control costs and turn it into a new revenue opportunity for themselves.

Reverse loop of goods can translate to more revenue

The pressure on retailers to run an effective reverse logistics channel is immense. They have to manage their profitability, keep customers happy and deal with the reputational risks. LSPs that develop a strategic approach and deliver value-added services to retailers can generate a new revenue stream within this reverse flow of goods.

• Assess whether the product is good to be resold: LSPs can provide value-added services like a quality assessment to determine whether a product can be shelved back into the inventory. If found to be in good condition, it can be repackaged, re-labeled and sent back to the warehouse and to be resold.
• Find ways to reclaim the product: A Gartner research shows that only 48% of what is returned can be resold at a full price (Consumers return $642.6 billion in goods each year). LSPs can offer services to retailers to find ways to reuse a product that cannot be resold. A product can be inspected and processed for refurbishing, repairing, salvaging, recycling or discarded completely.
• Offer a centralised hub for rapid returns: LSPs can help ensure the products are returned rapidly to their retailers or countries of origin, especially in the world of fashion, and even offer additional services like reattaching price or security tags. With return centers located closer to the customer, LSPs can ensure that returns are processed faster and that the saleable products get back on the shelf faster.
• Minimise returns-related costs: By working on attractive rates with freight providers, LSPs can reduce transportation and shipping costs with effective parcel management, thus serving better pricing plans to retailers.

Leveraging technology for robust returns management

The key to reversing the obstacles inherent in returns management is to use emerging technology and
proven solutions to execute reverse logistics like a business and not a department.

• Complete visibility into the reverse flow: With a granular-level visibility into the flow of goods, both inbound and outbound, LSPs can extend real-time planning abilities to retailers helping them execute orders with precision and deliver a better customer experience with faster service, driving continuous improvement.
• Connect disparate systems: When data from different entities like e-commerce systems, warehouse management, and transportation is combined together, it gives retailers a holistic picture with a single source of truth to make the right decisions and enhances collaboration between various parties.
• Real-time updates: With instant alerts and notifications, red flags can be raised to managers even before problems arise and mitigation measures can be initiated. This also serves to keep better control over unexpected costs or haphazard planning.
• Use predictive analytics: Through the use of advanced analytics that supports network planning, LSPs can figure out the best pick-up and drop points, optimise transportation routes and gain a better understanding of future demands.

Unlock new revenue opportunity

A retailer wants to be able to offer hassle-free return policies to customers, one of the things that make e-commerce brands attractive and gives them a competitive edge. More than a third (35%) of web shoppers say that “ease of returns” is a top factor that influences their buying decision (RIS News Shopper Insight 360 Report). The impact of failing to execute a return policy efficiently can result in declining market share.

LSPs can go beyond simply coordinating reverse logistics for retailers and help them in building a loyal customer base that keeps coming back, not only because of an attractive shelf of products but also because of convenient post-purchase facilities like returns. Such an approach translates a previously understood cost-center to a revenue building opportunity for LSPs and a reputation building initiative for retailers.