Mastering peak demand and rising returns

For most retailers, the revenue generated during peak demand periods shapes their overall performance for the year; they are make or break moments. It’s crucial that retailers can speedily respond to the big spikes they see in demand to capitalise on sales opportunities, and now this pressure is combined with the need to manage ever growing returns quickly and efficiently in ways that don’t impact growth.

Managing simultaneous peaks in demand and returns is proving a challenge for most retailers, with some opting to charge for returns, others now increasingly offering return-less refunds given the processing costs. Getting this right is important; for customers their buying and returns experiences informs their brand loyalty. Delight customers during peak and process their returns smoothly and retailers will benefit from enhanced loyalty. Fail to deliver customers the service they expect, including efficient returns, and retailers risk losing their custom to competitors.

The waves of demand and returns

The lead up to the festive season has long been the number one peak period for many retailers. With the introduction of Black Friday and Cyber Monday, that peak period now starts earlier and continues well into January with post-Christmas sales. Combine this with a rush of goods returned that can start well before Christmas and peaking in January, and you start to get a sense of the logistics effort required to deliver this.

And the scale of these peaks is staggering. For example, last year’s festive peak for one of the fashion brands we partner involved a 42% increase in outbound orders from 3.6 million units in August and September to 5.1 million in December. Similarly, the Christmas peak for one of our leading grocery partners sees a 78% jump from 5 million outbound units in August to 8.9 million units by December. Smaller brands we work with see a similar pattern, needing systems and people to respond to anything between 50-100% demand spikes as today’s retail landscape is much less predictable. Optimising sales opportunities requires all brands, whatever their size, to be responsive to dynamic demand levels that rise and fall sharply, sometimes unpredictably, numerous times of the year.

The colossal variance between normal monthly volumes and peak demand levels mean that retailer of all sizes need to be able to scale up and down their logistics efforts to capitalise on dynamic demand.

An effective reverse logistics strategy

With as much as 17.6% - 35% of online sales returned¹, reverse logistics – the management of returns goods – remains a considerable and daunting challenge, especially as the peak in returns often coincides with the peaks in outbound demand. Even our smallest brands experience doubling of returns at the same time as experiencing their peak demand periods. This is why the implementation of an effective reverse logistics strategy should be a priority for all retailers. Done right, an effective returns process can drive profit and customer loyalty. A starting point has to be focus on averting returns in the first place by ensuring that orders are correctly and quickly despatched, incorrect or late orders are more likely to be returned at a cost to the retailer and the environment.

When goods are returned the key focus must be on returning them to inventory for resale as quickly as possible. For example, at GXO we aim to get goods returned on resale within 24 hours of receipt in the warehouse. This is critical because it enables retailers to maximise peak sales windows at full or near full price. A speedy returns process is important to deliver the fast refund experience consumers expect. Today’s returns capabilities also have to extend to cleaning, repair and retest so that retailers cannot just return goods to sale but also meet increasingly stringent ESG regulations on landfill and waste.

Flexibility is core to meeting demand

So, what are the key requirements for retailers daunted by this challenge? Firstly, when managing these huge peak periods of demand, our first rule is to adopt a ‘one team’ approach across the whole business, maximising our effort and enabling us to make decisions at speed.

We plan for around 35% of additional labour at peak periods, so having in place trusted partnerships with reliable labour suppliers is important, as well as processes to onboard new colleagues so that they are safe and up to speed quickly. Cyber security and IT warehouse systems need to be load tested, balancing the demand at an enlarged rate to ensure they are resilient and robust. Management and support services need to increase as the hours of operation extend. Underpinning these preparations are well informed demand planning models and our talented colleagues, increasingly supported by generative AI to achieve more accuracy.

In our warehouses, tech systems and solutions including adaptive automation such as personalised digital equipment, autonomous robots, and automated systems, enable us to deliver much higher volumes of outbound units at scale and speed. However, when volumes go up quickly you need an equally responsive transport fleet to avoid damaging backlogs. This is where 3PL’s like GXO can add value, shifting fleet from non-seasonal demand areas utilising our shared fleet network when required.

When it comes to dealing with peak levels of returns, robust returns management systems are crucial. Our dynamic systems allow retailers to triage and prioritise top sellers, rather than treat every item the same. Getting your top sellers back on sale quickly can be the difference between a sale at full price rather than discounted. This data can also inform product development and design, allowing retailers to identify faults and make changes to minimise returns in the future.

Another element of an effective reverse logistics strategy is the ability to undertake enhanced ‘rework’ services – such as replacing buttons and repairing zips or resetting and repairing electronic devices for resale. In 2023, we saw 35% of the returns we processed reworked for resale. Increasingly we see our customers looking to adapt their reverse logistics to exploit the growing demand for pre-loved and recycled goods too.

For growing brands who think this level of logistics service is out of reach, it isn’t. Our shared warehouse offer, GXO Direct, provides smaller businesses access to all these scalable services including tech solutions, automation, returns and refurb services, at economies of scale. Having access to these services at economies of scale enables growing brands to also exploit seasonal demand.

The power of logistics in the new norm

It should be no surprise that shopping peaks are becoming more extreme, no longer limited to the annual festive season, or that higher levels of returns are now a part of retail life. Retailers shouldn’t be daunted by this. The growth of automation, technological solutions and AI in today’s leading warehouse and transport systems mean that they can both be managed efficiently and at speed. Logistics now plays a critical role in retail success, and the challenge for many retailers is not how to deliver the right logistics services but picking the right logistics partner to provide them the specialist systems, technology and automation now available to give them vital competitive edge.

1 https://nrf.com/research/2023-consumer-returns-retail-industry

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