Study: in-store processing is cheapest option for retailers to handle returns

As retailers brace for a flood of returns following the strong 2017 holiday peak shipping season, an industry study shows that handling that inventory with a return-to-store strategy is cheaper for most retailers than routing returned parcels to a DC or a third-party logistics (3PL) partner.

Handling returns through stores costs retailers an average of $3 per item, compared to $6 per item when returned items are sent to a distribution center (DC) and $8 per item when handled by a 3PL, according to "Many Happy Returns for Retailers," a Dec. 19 report produced by the New York City-based consulting firm AlixPartners LLP.

Processing returns in store also allows retailers to rotate that inventory back onto brick-and-mortar shop shelves faster, the study found. The number of days until a product is available for resale is 1 day when returned to a store, compared to 4 days when returned to a DC and 6 days when returned to a 3PL, the AlixPartners report said.

Despite those advantages, many retailers will deploy a mix of strategies to manage returns, because handling the process in stores can put a heavy strain on companies' resources when package volumes get extremely high, the report found.

That's because assigning sales associates to handle returns uses up labor resources, preventing those employees from interacting with live shoppers, AlixPartners said. In addition, many items returned to stores end up in clearance bins where they typically sell for less than full retail price, the firm said. In response, some retailers hire 3PLs to help them scale up for the holiday rush of returns, justifying that extra cost by returning sales associates to the retail floor, according to the report.

Retailers may be facing just such a scenario right now, since forecasts indicate that the robust 2017 peak season may lead to a record flow of returns. Shoppers drove up U.S. core retail sales for November to a 5.5 increase over the same month in 2016, and spent a record $19.6 billion in online sales between Thanksgiving weekend and Cyber Monday, a 15 percent increase over last year, according to a related AlixPartners report, "monthly retail and economic update, November 2017 retail sales."

In fact, consumers have already started returning masses of online purchases, shipping more than 1 million returns packages per day through UPS Inc.'s network throughout the month of December, the Atlanta-based transport and logistics giant said this week.

UPS forecasts that pace will continue into early January 2018, peaking at 1.4 million packages per day around Jan. 3, the company said. That mark would be an increase in returns of 8 percent from a year ago, setting a fifth consecutive yearly record, UPS said.

"While the day after Christmas used to be reserved for long return lines at department stores, the growth of e-commerce has changed when and how consumers return gifts," UPS' Chief Commercial Officer Alan Gershenhorn said in a statement. "A customer-friendly returns program is now an essential part of any successful e-commerce program."