Edition 128, December 2023

Merging Reverse Logistics and Recommerce to Create a Revenue-Generating Supply Chain

By Bobby Wann, Nok Recommerce

Historically, most organizations viewed the reverse supply chain as a cost center.s. Rarely is the reverse supply chain seen as a potential revenue generator in its own right. This traditional perspective misses a crucial opportunity that has risen in the marketplace in the last few years – the integration of reverse logistics and recommerce within a circular operating system can become a significant profit generator for brands and retailers. A proper circular supply chain can be leveraged to capture a new subset of customers on discount channels or retain customers by building loyalty-building financial and environmental incentives.

Free Returns Have Become a Necessity

The opportunity to generate significant revenue through a circular operating system has risen due to consumer demand for the offering of returns and, more importantly, “Free Returns” from e-commerce companies and retailers. In fact, according to PYMNTS’ 2023 Global Digital Shopping Index, 33.4% of U.S. consumers consider the feature of free online returns "very or extremely important" when choosing whether to make a purchase from an e-commerce company. Given this rise in consumer demand, returned goods are at an all-time high. The National Retail Federation estimated that U.S. shoppers returned $816 billion in goods in 2022, with an average rate of return of 16.5%. So, for every billion dollars in sales, approximately $165 million worth of merchandise is returned. Based on current projections for retail sales in 2023, returns will cost U.S. businesses more than $850 billion this year alone.

The initial reaction to the trend has been the implementation of price increases. While consumers may not see the correlation, the reality is that brands and retailers need to compensate for anticipated returns. This practice is only exacerbated by the fact that the most common practice in the industry is not to resell returned items.

So, where do these items go? Some companies store returned items in warehouses, while some will sell the merchandise to liquidators for pennies on the dollar. The reality is that the majority of returned merchandise ends up in landfills. To put it into perspective, that translated into approximately 9.5 billion pounds of returns that ended up in landfills in 2022.

Circular Operating System Has Proven Results

The staggering reality is that approximately 80% of returned merchandise can actually be resold, representing a massive untapped source of revenue for brands and retailers. The opportunity here is clear: by implementing a circular operating system, businesses can recover lost revenue and prevent merchandise from becoming waste.

The circular operating system involves the return, refurbishment, and resale of products, offering a powerful means of recovering lost revenue. This approach can result in the recovery of more than three times the amount of revenue per item typically obtained through traditional liquidators and third-party resellers, as well as substantially scaling the percentage of sellable returns by leveraging refurbishment strategies.

Beyond the financial gains, there are additional benefits to be reaped. Embracing a circular operating system promotes sustainability by diverting merchandise from landfills. It also helps lower warehouse costs, reducing the need for substantial investments in storage for old and excess inventory. In essence, a circular approach not only recovers lost revenue but also contributes to a more environmentally responsible and cost-effective supply chain.

Three Key Elements for Implementing a Circular Operating System

Effectively installing a circular operating system can seem daunting but at its core, the foundation is based on three key elements that can be instilled within a company’s supply chain and sales processes separately or all together based on the current structures that already exist within an organization. It is key for business leaders to identify the best approaches for implementing the following three elements within their organization and developing the technical and business processes to ensure these components are all seamlessly connected within their supply chains and sales systems.

Piece #1: Returns

A seamless approach to returns starts with simplifying the customer experience when returning items. The fewer the number of touchpoints for a consumer to return an item, the more incentivized they’ll be to re-engage. For the brands, a simple returns process includes streamlined coordination of centralized collection sites and efficient distribution to the appropriate facilities. There are several software solutions that help companies automate this entire process and eliminate the headache of returns for the company and the consumer.

Piece #2: Reverse Logistics

Studies have shown that as much as 80% of durable goods can be refurbished and resold. To capitalize on this potential, businesses must establish an efficient reverse logistics process that powers receipt, inspection, grading, pricing, and repackaging of returned merchandise. This can be done either in-house at a company’s own facilities, or through outsourced facilities. By outsourcing the reverse logistics process to a specialized facility, companies can achieve a faster and less costly approach to recommerce. The addition of refurbishment to a company’s circular strategies has been proven to dramatically increase the percentage of saleable returns and, as a result, returns revenue recirculated back to its bottom line rather than lost in landfills.

Piece #3: Resale

An effective resale strategy is crucial for generating additional revenue without jeopardizing the brand's integrity. By adopting a multi-channel resale strategy for returned merchandise, companies are able to not only intelligently expand their markets to new audiences but also maintain control of brand equity and reputation that is frequently lost in traditional liquidation and third-party resale. Key elements to consider in a resale strategy include avoiding risks of cannibalization of new product campaigns, investing in multi-channel marketing strategies, and implementing dynamic pricing strategies to compete with resellers while still ensuring profitability. Recommerce partners, like Nok Recommerce, specialize in optimized multi-channel resale strategies for brands. Nok operates as an extension of the brand to ensure consistency in quality and handling of merchandise that complements a brand's preferences, restrictions, and objectives.

Implementations Can Happen in Weeks, Not Years

While setting up a circular operating system may seem daunting due to its multifaceted nature, the transformation can actually occur quite swiftly. One of the primary challenges is the lack of data and systems to process returned inventory effectively. However, companies need not undertake a complete redesign of their supply chain and inventory processes. Instead, they can leverage existing tools in the market to reroute products that were previously destined for landfills or warehouses and start realizing revenue within weeks. This means that the potential for the supply chain to become a revenue generator is within reach through the adoption of circular operating systems, like Nok Recommerce, and without the cost of increased headcount, capital expenditures, or the implementation of significant processes.

By recovering lost revenue, promoting sustainability, and reducing unnecessary logistics costs, brands and retailers can seize this opportunity to transform their supply chains and contribute to a more profitable and responsible future. It's time for businesses to recognize that the circular approach is not only economically viable but also ethically imperative in today's circular world.

Bobby Wann
Bobby Wann earned early recognition as a Thiel 20 under 20 Summiteer in 2014. His journey started at Darla Moore School of Business, University of South Carolina, as the founder of Geekin Radio where he developed groundbreaking technology that revolutionized music streaming with patented software. He continued on to consult for StartBootCamp’s accelerator in Berlin, where he gained invaluable expertise across logistics and supply chain. From there, Nok was born in 2019 to tackle major dilemmas in supply chain circularity observed throughout his experience. Nok is powering the circular economy through its connected suite of reverse logistics SaaS, facilities and recommerce services to drive profitability and circularity for brands and retailers. Nok's software, facilities, and recommerce services power the returns, refurbishment, recycling, and multi-channel resale of products for brands and retailers.