Successful retailing, as the old cliché has it, is the art of selling ‘goods which don’t come back to customers who do’. Unfortunately for some retailers, rather a lot of those goods do come back.
In mail order fashion, a returns rate of 40 per cent is not unusual as shoppers habitually order the same item in two or three sizes and then simply return the ones which don’t fit. For high street retailers, without the benefit of a central processing point for mailed returns, the problems are rather more complex. Goods are not always returned to the branches where they were bought, items purchased over the internet might be taken back to a high street store, electrical goods may reappear in damaged boxes or with instructions missing and – for the sake of goodwill – retailers will usually simply smile and take them back.
Over the past few years, as the problem has escalated, an entire industry has developed to cope with the merchandise mountain: reverse logistics is now big business with a diversity of models emerging. Comet, for example, has worked with Fairmarket to create a website that auctions returned goods. The system is not only proving popular but has allowed Comet to close its old clearance shops.
Outsource the hassle
Tesco, too, has had to come up with an innovative solution as it has grown its more profitable non-food operations. Traditional grocery distribution centres are ill-equipped to handle pallets of miscellaneous electrical equipment returned by stores so outsourcing the operation to specialists is an attractive option. Tesco uses systems from Tablogix to manage returns from 730 of its stores. Returned goods are grouped by type as being suitable for repair/repackaging, resale at reduced price through non-competing channels, disposal or return to supplier. Tablogix manages the routing and appropriate distribution with online, real-time reports for Tesco to enable accurate monitoring to improve assortment planning and supplier relationships while cutting costs and generating revenue.
‘The solution fits seamlessly with the rest of out supply chain operation,’ says Gary Scott, import warehousing manager at Tesco. ‘As a result we are able to make considerable savings which has an impact on the business as a whole.’ The Tablogix solution, called ‘ReSCU’ processes returns within 48 hours and also handles the suppler credit and debit issue to improve cash flow. Information about the return is logged initially in-store using a web-based system and then the item can be tracked back to the handling centre and through to ultimate disposal or resale.
According to Datamonitor around 80 per cent of returns business in the US is now outsourced to specialists like this, although in Europe the figure is closer to 15 per cent. ‘Legislation and other factors will stimulate this outsourcing trend,’ says Datamonitor business analyst Tom Mills. ‘Logistics companies that meet this growing demand will offer efficient and affordable solutions and technology can play a key role.’
And reverse logistics is set to become even more significant once the rather ridiculously named WEEE Directive takes effect. This ‘Waste from Electrical and Electronic Equipment’ is one of the EU’s more inane attempts at imposing its concept of environmentallyfriendly activity on the rest of us. WEEE has already sparked a growing controversy in the printer ink-cartridge market with the concept of refilling used cartridges likely to fall foul of the small print that directs that such electronic components must instead be sent for recycling. The directive sets targets for both recovery of electronic components and recycling with the aim of collecting 4kg of electrical equipment per head throughout the EU by 2007.
Member countries have until autumn 2004 to comply with the directive which will force retailers, manufactures and importers of electrical goods to be responsible for recycling, recovering and disposing of the electrical equipment they supply. A number of outsourcing initiative are appearing here, too.
Transform, for example is a joint initiative between logistics specialist Endeva and waste collection operation Biffa. Transform plans to collect products from homes or stores, or provide skips in suitable locations, and then manage the recycling and recovery process to reuse what it can. Private sector developments like this will certainly help solve the WEEE problem but – as happened with all those fridges abandoned in English country lanes – one rather suspects that the result will not be quite what the EU intended.
