The challenges of reverse logistics in fashion e-Commerce

Most fashion distribution facilities aren’t equipped to handle the rate of returns that e-commerce has generated. Without a well-developed reverse logistics process, returns represent a significant threat to facility profitability. But there are ways distribution facilities can adjust their processes to handle returns and make reverse logistics less painful and even profitable.

By Lars Beier Madsen

 

You’ve been watching the surge of online shopping and you know what it means for your fashion fulfilment centre, distribution centre or 3PL warehouse. An influx of returned items – on average, between 40-60 percent of all online purchases – and the headache in working out how to handle them.

The plague of the returns

It’s not surprising that fulfilment centre, distribution centre and 3PL warehouse operators consider returns as a “pain point” in their operations. According to SaleCycle, the fashion industry has the highest rate of consumer returns. SaleCycle’s breakdown of returned online products shows substantially more clothing and shoes are returned than any other category:

And a study by the University of Bamberg estimates that returns rates may actually exceed 60 percent for e-commerce fashion retailers. The trend is likely to continue as more people shop online and are more likely to return their purchases.

For the fashion warehouse, this trend can mean:

  • A third of business operations is spent on returns – not only do operators not earn money on items sent out but incur costs in handling returned items – demanding ever more efficiency to realise profits.
  • Inability to plan – operators cannot plan resources to handle the returns given the unplanned nature of returns.
  • Increased handling costs – handling returns requires qualified staff to ensure quality control and every touch of an item incurs costs.
  • Impact on space – returns take up valuable warehouse space and conflict with incoming new season and sale items.

Unfortunately, for most fashion distribution operators, the primary focus is on order fulfilment and they often treat reverse logistics as an afterthought. But facilities can no longer afford not to concentrate on their reverse logistics – there’s too much at stake in terms of brand protection, sustainability requirements and ultimately, profitability.

So, the question is, how can fashion distributors refine their returns management processes to reduce costs and loss of profit?

The nature of the beast

It’s perhaps best to start with an understanding of the nature of reverse logistics in the fashion industry.

There are two types of returns that fashion distributors have to deal with. The first is the return made directly from the customer, either directly to the warehouse or to the store that then returns them to the warehouse. These items must be opened, processed, scanned, evaluated and sorted before being repackaged and relabelled for resale. Items returned to the warehouse via the store are often more difficult to process because they are numerous, arrive with no RMAs and the warehouse has no idea of their nature.

The second type of return is the end of season, overstock items that the store sends back to the warehouse. As the warehouse pushes more and more items out, it sees more and more unsold items coming back, driving a higher SKU turnover. These items are somewhat easier to process, however, because the warehouse generally knows the nature of the items coming back, having sent them out. And the returned items are usually in decent shape.

But no matter the type of return, the distribution facility faces a costly returns handling process. This is because reverse logistics is extremely labour intensive. So a facility that can automate and relieve its labour burden is going to reduce the overall impact and costs of its reverse logistics. It may even uncover a hidden value in its returned assets.

Reducing the impact of returns through sophisticated sortation systems

The way in which a fulfilment centre, distribution centre or 3PL warehouse can reduce the impact of returns is by looking at reducing transportation and labour costs and increasing speeds of processing returns.

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Approximately 80 percent of all labour efforts in fashion distribution are concentrated in the transportation of items within the facility’s four walls – whether that’s by foot or by vehicle. This can be burdensome given labour shortages and wage hikes. The right handling system, however, can help drive down these labour costs.

As intralogistics become increasingly labour intensive, businesses are waking up to the possibilities of automation, and the industry has matured very quickly. There is a growing appreciation for the dependability and efficiency that automation offers, and how it supports warehouse and distribution operators to grow with the market.

Once returns are broken down by the warehouse and placed on the system, the automation takes over. Here’s what automation is capable of:

  • Space saving – many systems are compact and/or hang from the ceiling to save floor space and make way for drive ways
  • Handling 10,000+ items per hour (most medium sized retailers handle on average 10,000 items per hour)
  • Identification of return-label information to pre-sort into returned item groups for more optimised and accurate processing
  • Optimising and automating processes for verification control (item quality and condition)
  • Broader range of item handling
  • Gentler item handling
  • Serving as temporary storage for immediate reselling and shipping of fast-moving items
  • Data analytics to refine the process

The sortation systems themselves are becoming smarter and better able to handle units. Where in the past labour was required to sort out where an item should go and then move the item, the smart logic of a high-end sortation system can assess the item, determine its destination within the warehouse and transport it there. The only labour required is at the initial item check with visual control which is not a large component of the overall labour costs.

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The hidden opportunities in reverse logistics

By incorporating high-end sortation systems into the design of the returned items flow, fashion distributors today can take advantage of the automation.

The value of automated sortation is that it can be very accurate. It can achieve a finer sortation that would typically take labour and time. For example, once the distribution facility has handled the initial receipt of the returns, the automated system can then handle a second or third-level sortation into individual SKU master packs or gaylords destined for the next market segment. By this point, the facility knows exactly what’s in every package. And if it opts to onsell its returns, it can receive a higher value because of the way they have been sorted, segmented and treated.

Instead of returns being a loss, this higher level sortation can create a value chain within the supply chain, an untapped revenue stream. In other words, returns start paying for themselves. At the same time, the facility also gets to meet its sustainability requirements and enhance its environmental scorecard.

Having a system integrator evaluate the material handling system that best fits the warehouse’s needs can assist in realising these opportunities. A system integrator has an overview of the most effective products and systems to solve the growing need to optimise reverse logistics processes, depending on item profiles, sizes, volume peaks and capacity, the need for manual inspection of the returned items and the extent.

Conclusion

There is no doubt that reverse logistics has evolved into a highly complex endeavour and that new strategies, tools and best practices are required. Giving the proper attention to building an effective reverse logistics programme will go a long way in helping fashion fulfilment centres, distribution centres and 3PL warehouses understand and refine their returns processing. Finding the right sortation system to automate and relieve labour efforts will also help refine the process and significantly reduce costs. With the skills of a system integrator, fashion distribution facilities can even design their sortation processes to recapture value and uncover the hidden potential of returned assets.

 

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