The Returns War

First off, a tip of the hat to Eric P on LinkedIn who noted the ‘returns war’ in a post when FedEx announced its partnership with Blue Yonder. Eric posed an interesting question - “With the 2 other major players in the space ZigZag Global and ReBound already having been acquired, was FedEx basically left with no more options for M&A and therefore pushed into a partnership?” The answer to this is no. A number of reverse logistics providers can be found in the Reverse Logistics Association’s directory of service providers.

The reverse logistics market comprises a number of players and as noted by DHL’s acquisition of Inmar Supply Chain Solutions, this space is ripe for acquisitions.

The Importance of Mitigating Returns Costs

But first, why the focus on returns? Easy answer - It’s all about mitigating costs for retailers and manufacturers. Retailers and manufacturers need to profitably recoup all, or as much of their inventories as possible. The cost includes, but is not necessarily limited to, paying the vendors/manufacturers for the inventory and transportation and warehousing costs prior to selling the goods. The longer inventory sits in a warehouse or in a physical store, the cost remains on the retailer/manufacturing financial books as a credit.

As returns are made, the retailer/manufacturer will reimburse most, if not all, to the customer, depending on returns policies, warranty agreements or recall notices but that also reduces any profits. In addition, in a growing number of instances, a retailer/manufacturer will not only reimburse the customer but also tell the customer to keep the item if the cost to return and the disposition the item is more than the cost of the item – which is basically leaving money on the table for retailers/manufacturers.

So, depending on the type of return, the retailer/manufacturer may attempt to recoup some its cost by reselling the item at a reduced price through its physical store or online, sell the returned item to a liquidator who, in turn, will then sale the returned items to a retailer in the secondary market or donate the item to a charity for a tax write-off.

The additional transportation costs to pick up the returns and transport them to a warehouse or designated returns facility is only one cost to the retailer/manufacturer - the other is the dispositioning of returned items. This is where workers determine what to do with the returned item - resell as is, recycle parts, or all of the item, or repair and then resold. It is a labor-intensive process and thus, another cost to the retailer/manufacturer.

Many retailers and manufacturers tend to handle their returns in-house but there are also third-party service providers that specialize in the reverse logistics side of supply chains - dispositioning services, recyclers and repairers, liquidators, transportation management and more – either all or part.

There are also logistics providers and carriers that offer a small part of reverse logistics as value-add services to their customers.

The rise of e-commerce has been attributed to the rise in retail returns due to varying reasons including poor website designs that do not display accurate colors of items, lack of, or incorrect sizing information, “free returns”, bracketing and more. The easier it is to buy items online, the easier it is to return items – and this has become a problem for many online retailers – and a focus area for logistics providers and carriers.

DHL, FedEx and UPS

Parcel carriers play a major role in handling and transporting returns. DHL and FedEx have announced new returns solutions this year following UPS’ acquisition of Happy Returns in 2023.

DHL

In January, DHL’s division, DHL Supply Chain, acquired Inmar Supply Chain Solutions, a division of Inmar Intelligence. According to the announcement, the acquisition will result in 14 return centers and around 800 associates joining the DHL Supply Chain business. Additionally, DHL Supply Chain noted it would also strengthen its returns capabilities to include product remarketing, recall management, and supply chain performance analytics.

FedEx

Meanwhile, last week, FedEx announced FedEx Easy Returns, supported by Blue Yonder. Per the announcement, the new service allows FedEx customers to access a low-cost, box- and label-free returns solution launching with approximately 3,000 drop-off locations in the trusted returns network of FedEx Office and Kohl’s stores with plans for swift growth across the U.S.

The new service will also help streamline the returns experience for merchants. Returns will be routed through a reverse logistics facility for optimal recovery, helping merchants ensure the accuracy and speed of the return, as well as potentially reducing waste.

If the service sounds vaguely familiar, you’re not alone. Before UPS acquired Happy Returns, FedEx partnered with Happy Returns for a similar solution that they are now partnering with Blue Yonder. According to the 2020 announcement, FedEx is partnering with Happy Returns to offer in-person returns at more than 2,000 FedEx Office locations nationwide for Happy Returns' retail partners. In turn, FedEx will use Happy Returns' technology to aggregate box-free returns into one shipment that is then sorted, processed and returned to each individual merchant.

In late 2014 FedEx acquired Genco, a highly regarded reverse logistics 3PL. As noted in the announcement, “With a comprehensive portfolio of supply chain services, GENCO’s expertise will expand existing FedEx service offerings in the evolving retail and e-commerce markets.”

What happened to Genco since FedEx acquired it? It's likely that it was integrated into FedEx Supply Chain and remained there with little strategic attention.

UPS

Despite an investment and a strategic alliance with returns technology firm, Optoro, UPS acquired Happy Returns in 2023. UPS CEO Carol Tome said of the acquisition, “By combining Happy Returns’ easy digital experience and established drop-off points with UPS’s small package network and footprint of close to 5,200 The UPS Store locations, box-free, label-free returns will soon be available at more than 12,000 convenient locations in the U.S.”

Furthermore, the acquisition announcement noted that users can access a returns portal, make a box-free return at the most convenient location and have their item shipped, sorted and returned to the merchant.

Happy Returns partners with brick-and-mortar retailers that are willing to accept packages from other brands. The company charges merchants a monthly service fee, so customers can return items they bought online without boxes or affixing shipping labels.

In early 2024, Happy Returns and UPS collaborated with Geek+, a robotics company, to transform Happy Returns’ East Coast hub in Shoemakersville, Pennsylvania into an automated returns hub to accelerate processing times. According to a Modern Retail article, the median time for returning items to retailers was reduced by 35%.

In addition, Happy Returns utilizes its return volume data to identify patterns, trends and to predict with greater accuracy return spikes.

Indeed, technology is playing a bigger role in reverse logistics by providing visibility across processes, understanding why an item is returned and calculating the cost components of a returned item.

Managing reverse logistics is typically part of retailers/manufacturers’ sustainability practices and should also be a part of managing overall supply chain costs. Perhaps, incorporating reverse logistics data into inventory management systems and transportation management systems, for example, may help in managing inventories and transportation routes in a more effective manner.

- Cathy

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I wear a number of hats these days. I’m also helping out the Reverse Logistics Association as a research manager, and at JOC, I help out as a research analyst and write a weekly LinkedIn newsletter, Freight Forward, summarizing JOC & other published articles and providing an outlook for the week ahead. In addition, be sure to check out my website and be sure to sign up to receive more blog posts. 😉