The impact of reverse logistics in the circular economy

In June, GXO released its 2023 ESG Impact report. As I reflect on the scale of our global efforts, I am both struck by how complex and daunting the challenges facing our planet and people can seem, and simultaneously energized by how much companies, like GXO, are doing to address them.

Collective challenges require collective solutions. As the global leader in cutting-edge logistics and warehousing solutions, GXO is uniquely situated to partner with our customers across industries and geographies as they transition to a circular economy. Over the past year, we've had the opportunity to partner with a range of leading brands in repairing and repurposing existing items and recycling and reusing materials, from shoes and apparel to consumer electronics and home appliances. You can read more in our report.

Applying circular practices in the consumer goods industry is a topic that is gaining increased attention. In July, the New Ecodesign for Sustainable Products Regulation entered into force in the EU. The regulation sets requirements for environmentally sustainable products and mandates that products are designed for durability, reusability, and otherwise for enhanced circularity. It also includes a ban on the destruction of unsold textiles and footwear. Similar legislation has also been proposed in California. GXO can help customers enhance their circularity through reverse logistics, where we help repair and rejuvenate items that may otherwise be directed to landfill, as well as ensure that returned products are efficiently managed to resell promptly to the next consumer.

A focus on the future of fashion

Fashion production has always required significant natural resources. The new EU regulation will require companies to take a comprehensive approach to enhancing their sustainability and deploy a variety of solutions, including using alternative materials and increasing repair and recycling rates. Ultimately, the regulation is intended to keep textiles in use for longer, reducing the lifetime environmental impact of the materials.

While many companies have been working to make their garments more sustainable for some time, this regulation is focused on accelerating the transition. Ultimately, collaboration up and down the supply chain will be necessary to create new business models that effectively support a circular fashion economy and comply with this new regulation while minimizing waste and overproduction.

While brands and designers seek more sustainable materials to use, scalable production of these materials will take time. A more immediate step to develop a circular fashion economy is keeping items in use for longer and taking steps to avoid discarding items unless absolutely necessary. For example, many consumers purchase apparel in multiple sizes online, try it on at home, and then return the items they don't want. These products are typically in perfectly good condition but need to be reprocessed efficiently in order to get them ready to be sold again. Unfortunately, many companies have not historically prioritized reprocessing returns or had the capabilities to do so in a timely and cost-effective manner, leading to a high volume of perfectly usable items going to landfill.

GXO performs this essential returns management service for fashion brands, making it more efficient and economically viable for companies to embrace this process as part of their journey towards circularity. We have developed processes and trained employees to identify opportunities to repackage, and where needed, rejuvenate items so they can be resold quickly and at full price. Small touch ups like ozone treatment, steaming, and minor cleaning - or even more significant repairs and refurbishments - can ensure that a product which might have otherwise been sent to donation or landfill can be returned to inventory quickly. Not only does this reduce waste and the need to produce a replacement product, it also maximizes revenues through higher full-priced sales. The speed of inventory turn is particularly important in fashion, where seasons can quickly render a garment out-of-date and therefore more likely to be sold at a discount, affecting brands' margins.

Maximizing the value of apparel returns

We're proud of our expertise in reverse logistics to ensure that returned apparel items are kept in circulation as efficiently as possible. In Poland, we've set up a space dedicated to apparel repairs in our 970,000 square foot shared user campus. In 2023, this site processed 48 million returned items and successfully returned 96% of the items to stock. This success rate was further bolstered by GXO team members performing additional rejuvenation and repair work on 7 million items so they could be given a second life.

In the U.S., we have a 1-million square foot "zero-landfill" facility with the capability to process high volumes of returns for an athletic shoe and apparel customer. Annually, we process 32 million returned units of footwear and apparel at the site, 95% of which are restocked and resold. While most units are quickly graded and returned to sale in primary channels, in 2023, 600,000 items were identified as eligible for additional light cleaning and refreshing and then processed through the customer's refurbishment channel. Further adding to the circularity of the site, GXO identifies products that cannot be resold, and these units are downcycled for the customer into raw materials for resale and reuse.

We are also beginning to work with brands on how to develop an efficient 'pre-loved' product marketplace. Consumers are increasingly interested in the broader effect of their purchases on the planet, and buying pre-loved items is an increasingly popular way of reducing impact. Increasingly, brands are seeing value in managing their second-hand products and increasing their customer base by doing so. In October 2022, GXO helped Swedish children's clothing retailer Polarn O. Pyret, also known as PO.P, launch "PO.P Second Hand," the brand's own scalable, profitable resale business. In the year since, GXO has restored over 95% of returned pre-loved clothing for resale and captured value that would have otherwise been lost to other online marketplaces. Indeed, 35% of PO.P Second Hand shoppers are new customers.

GXO's expertise in returns, repair and rejuvenation techniques helps us to live one of our core values -'Make an impact.' And we are. Waste diversion is one of our top priorities, and last year we achieved a global landfill diversion rate of 81.9%. Across our operations, GXO strives to reduce our environmental impact and we look forward to improving the circularity of our operations as we strive to achieve our targets and those of our customers. It's a clear win for our customers, our company and our planet.