Twenty years ago it was possible to centralize returns because almost all returns came through the brick-and-mortar store and were sent to a centralized returns processing center which created supply chain efficiencies, and drove down cost. In the same article from inboundlogistics.com Charles Johnston, Director of Repair and Returns for home improvement retailer Home Depot explains, “By reducing administrative and transportation costs, consolidation cuts reverse logistics costs by 40 percent on average”. The benefits of centralizing returns still exist in an omni-channel retailing world with a liberal return policy (example: Zappos.com return policy) but they require creative and complex solutions like marrying forward logistics and reverse logistics in the same fulfillment center, both of which have different processes and back-end systems.
This does not begin to touch the other costs baked into the returns process like regulation and fraud. On the regulatory side of the ledger a good example is California’s Electronic Waste Recycling Act of 2003. Retailers must collect and pay certain recycling fees for televisions of certain sizes. This extends to manufacturers as well as they must notify retailers regarding which products are covered by the legislation. A global retailer must manage these regulations across all geographies they do business in to ensure they are compliant. Likewise return fraud is a major problem for retailers with the National Retail Federation’s 2014 Return Fraud Survey estimating the industry will lose $10.9 billion to return fraud this past year. This extends into the method of payment (credit cards and gift cards are big offenders), and the challenge of “wardrobing” which is the returning of non-defective product.