Retailers opting for the reverse logistics route

Such a strategy helps minimise losses due to defective and damaged merchandise

MUMBAI: Mahesh Dethe has been a part of the sales staff at a Mumbai hypermarket for six years. And he has a story to tell about the way merchandise is handled there. “In my plastics section, two out of 10 pieces will definitely be damaged.

The way they throw about the merchandise inside warehouses damages the products,” he says. But a trend that is gaining ground in the retail space might soothe some of Mahesh’s ruffled feathers. With the Indian retail market becoming bigger, companies are focussing on minimising losses due to damaged items.

This is where reverse logistics comes in, with retailers planning strategies to fix such goods and resell them for a profit.

According to sales staff, plastic and food items are more vulnerable to this assault. Two out of every 10 one-kg packs are not good enough to put on the shelves and have to be returned. Same is the story with apparel.

Damaged pieces are collected and sent back in bulk. The phenomenon has prompted retail giant Future Group to plan four hubs where damaged goods will be repaired and resent for sale in discount stores. The company has decided to set up 100,000 sq ft facilities at Mumbai, Delhi, Bangalore and Kolkata to fix a wide variety of damaged goods. Future Group is mum on the investments required for the facilities.

Anshuman Singh, the chief executive of Future Logistics and Value Fashion, said, “Usually, around 2%- 10% of the goods come back depending on the type of products. Setting up these hubs would help trim losses that otherwise seem unavoidable. The goods would then go to various discount stores. They will never be sold through the main stores.”

Damage to goods during transportation from the vendor to the store is common. Food, plastics, apparel, electronics, crockery and furniture items sustain such damage. The kind of damage includes clothes being soiled, packaging being broken and so on.

Vendors usually take back the damaged goods. Branded equipments go to service centres for servicing.

Reverse logistics hubs like those planned by the Future Group could help companies make the process of handling such goods less cumbersome and more importantly, less expensive.

The goods that come in are sorted and classified as very minor, minor, major and very major, depending on the extent of repairs needed. Sorting is an important part of the repair process and the Future Group is becoming adept at this, claims Singh.

It is difficult to argue with the economics behind such initiatives. Consider a company like Pantaloon, which has sales of more than Rs 3,558 crore (as of last year). Even if it loses a small percentage of its revenue to such damages, the actual figure could be a big one. With the company showing sharp growth in sales from Rs 861 crore to Rs 1,354 crore in the January-March quarter, pulling down the percentage of losses through damages becomes imperative.

While the Future Group is building its own repair facility to deal with the problem, other retailers are content to stick to the existing system for now. Dharmendra Jain, head of finance and business development at HyperCity, says the company moves defective goods to its distribution centres. “From there, these are returned to vendors and damaged goods are disposed off at the store level periodically,” he says.

Similar are the responses from Shoppers Stop, Spencer’s and Spinach, owned by Wadhawan Retail. These retailers don’t feel their losses are big enough for them to focus on reverse logistics separately. Less than 5% -in most cases 2%-of the sales is counted as loss from defective and damaged goods. Future Group’s Singh offers to do the “dirty work” for other retailers too. “So far, none of the other retailers have reached the size required to make such facilities viable. It is dirty work and not as glamorous as other aspects of retail. In fact, we are open to doing kind of work for other retailers too,” he says.

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