DC Velocity - January 2018

newsworthy

AS RETAILERS BRACE FOR A FLOOD OF RETURNS FOLLOWING A strong 2017 holiday shipping season, an industry study shows that handling returns with a “return-to-store strategy” is cheaper for most retailers than routing packages to a DC or a third-party logistics (3PL) partner.

Handling returns through stores costs retailers an average of $3 per item, compared with $6 per item when sent to a DC and $8 per item with a 3PL, according to a mid-December report produced by consulting firm AlixPartners LLP. Processing returns in-store also allows retailers to make the items available for resale faster, the study found. The number of days until a product is available for resale is one day when returned to a store, compared with four days when returned to a DC and six days when returned to a 3PL, the report said.

Many retailers are expected to deploy a mix of returns strategies because handling the process in stores can put a strain on companies’ resources, the report found. Assigning sales associates to handle returns ties up labor that could be better used interacting with live shoppers, AlixPartners said. In addition, many items returned to stores end up in clearance bins, where they typically sell for less than full retail price, the firm said. In response, some retailers hire 3PLs to help them scale up for the holiday returns rush, a sizable extra cost often justified by freeing sales associates to work on the retail floor, according to the report.

Forecasts indicate the robust 2017 peak season may lead to record returns. U.S. retail sales for November rose 5. 5 percent over the same month in 2016. Shoppers spent a record $19.6 billion online between Thanksgiving weekend and Cyber Monday, a 15-percent increase over last year, according to a related AlixPartners report.

Atlanta-based UPS Inc., the nation’s largest transport company, predicted late last year that its returns would peak at about 1. 4 million packages around Jan. 3. That would be an increase of 8 percent from a year ago, and a fifth consecutive record for the company.

“While the day after Christmas used to be reserved for long return lines at department stores, the growth of e-commerce has changed when and how consumers return gifts,” Alan Gershenhorn, UPS’s chief commercial officer, said in a statement. “A customer-friendly returns program is now an essential part of any successful e-commerce program.”

Study: In-store processing cheapest option for retailers to handle returns

Tax reform delivers goodies to the supply chain, if it feels the need to feast

Many companies in the supply chain ecosystem will find the new tax law amply rewarding even if they don’t invest a dime in capital equipment this year. However, if they do spend a dime, or a lot more than that, they will find Uncle Sam far more generous than he’s been in the past.

The most sweeping federal tax reform measure in 31 years, signed into law at the end of 2017, bestows significant benefits on business. Companies that are “C” corporations—which include all Fortune 500 companies and many small businesses—will now be taxed at 21 percent, compared with the current range of 15 percent to 35 percent. The law is a booster shot for smaller concerns that operate as “pass-through” entities and that report income and expenses on their personal returns.

For example, most third-party logistics (3PL) warehouse companies are structured as pass-throughs, which means they pay taxes from business income on their personal tax returns. Those businesses stand to benefit both from a cut in most individual income tax rates and a 20-percent deduction of what the law described as “ qualified business income” from pass-through enterprises.

Businesses in service industries such as healthcare, legal, and professional services cannot claim the pass-through deduction. The deduction starts to phase out at certain income thresholds, and it is set to expire, along with most individual tax reductions, at the end of 2025.