Retailers begin stocking up as consumers prepare to spend big but returns policies may impact bottom lines
This year’s back-to-school season is officially underway, and its success will be a make-or-break moment for the logistics industry’s post-pandemic recovery. After a stagnant peak season last year, many in the logistics sector are heavily focusing their attention on this year’s back-to-school and peak season order inventory build-up as indicators of if there will be a sign of better things to come in the months ahead.
July is historically the time when consumers begin making their back-to-school essential purchases with the most recent data available showing positive signs that consumers are planning on spending more than ever before. According to the National Retail Federation, consumers are anticipating spending $25 more this year than last year on school essentials. This is being largely driven by their need to purchase higher-value ticket items such as laptops, tablets, and tech devices rather than the usual school supplies such as uniforms, stationery, and other staples.
July is also the time when merchants traditionally begin to stock up their inventory levels ahead of the holiday season. Some 3PLs are reporting that their fulfillment locations are experiencing a higher influx of inbound inventory ahead of peak season kickoff – signifying that many e-commerce merchants are optimistic that inventory will move in greater volumes than in recent years. However, this positive indicator that this year’s peak season will be more fruitful aside, there may well be cause for concern.
A number of other logistics companies have shared recently that they have yet to receive the usual number of requests for inventory transportation from merchants. This could be an indication that many retailers are waiting to see how willing consumers are to spend during the back-to-school run-up before making a last-minute commitment about their peak season inventory logistics plans.
This could quite possibly be a grave error on the merchants’ side as there is a potential imminent logistics disruption on the horizon. While UPS drivers and pilots reached a tentative five-year labor agreement to avert a strike that would have heavily affected the U.S. logistics industry, other national freight carriers are also facing challenges that are creating new uncertainty for retailers’ supply chains.
For example, trucking company Yellow most recently ceased operations nationwide, which has caused large retailers, like Walmart, to take their shipments to other carriers. This could then result in prices on shipments expected to increase, ultimately passing on those price increases to consumers. However, those retailers who were reliant upon Yellow’s transportation services may need to scramble to find alternative solutions which could become more scarce and harder to secure given that more than an estimated 20,000 companies including retail giants such as Amazon, Apple, and Samsung would be searching for the same lifeboat.
Risking It All On Returns
Strikes and stock-ups aside, there is also another logistics strategy that will determine a retailer’s success this back-to-school and peak season—its returns policy. These days, returns or reverse logistics play an important role in any successful omnichannel strategy. As the number of returns continues to climb each year, and with customers expecting an easy, free, and streamlined return experience, sellers will want to ensure that they are utilizing a reverse strategy that will not be eating away at their profits.
Returns are ultimately an additional cost burden that businesses need to incur during the course of their operations. Returns also impact a business’s carbon footprint as more returns mean more emissions as well as more products ending at landfill. Brands will want to carefully balance along this tightrope of catering to customer expectations and operating within means by gently influencing consumers to return products in a smarter way by leaning into their other expectations.
Sustainability is a key influencing factor for many consumers when shopping yet many remain unaware of the environmental impact associated with reverse shipping. Informing customers of the impacts of their return habits and encouraging them to make returns only when necessary could dramatically reduce costs and environmental impact by consolidating items and making them available for resale at a much faster rate.
Of course, businesses could also make changes to their returns policy but this may not be well received with their customer base. Instead of making blanket policy changes such as only offering free returns for a certain period of time or for transactions of a certain value—which can highly damage brand loyalty and sentiment, brands should instead seek to discourage repeat policy abusers.
The habit of bracketing—buying multiple items only to return the ones that do not fit, became popular during the pandemic and remains popular with online shoppers. This consumer habit is extremely costly from a returns point of view and by making subtle changes to their returns policy that limits free returns, merchants could discourage shoppers from repeatedly engaging in this behavior. Yet, this could cause further negative reactions from shoppers who might feel encouraged to make their purchases elsewhere should they feel that they are being unfairly targeted.
As always, supply chain operations require careful calibration that retailers will need to perpetually adjust to accommodate consumer and market changes. As the back-to-school season unfolds and peak season looms ever closer on the horizon, merchants will need to maintain a watchful eye on the latest industry developments, customer purchase patterns, and preferences, and prepare accordingly to ensure that this year’s peak season exceeds expectations.
As for the logistics industry, only time will tell if a full recovery and growth will occur by the end of Q4 or if these hopes will need to be pushed back into early next year.
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