Rampant returns and what to do about them
While shoppers are getting ready for the holiday season, retailers are also ramping up to sell, sell, sell.
The National Retail Federation (NRF) forecasts holiday sales may spike to $720.9 billion in 2018, an up to 4.8% increase from last year. Retailers and logistics providers alike are preparing for an onslaught of hires – up to 650,000 seasonal workers, by the NRF’s estimates – to handle a deluge of in-store traffic and online orders.
But e-commerce companies might not be spending enough time or investing enough money on the dark side of peak shopping season: the returns.
Returns aren’t going away, even if logistics haven’t caught up
Returns are part of doing business in modern retail. Depending on the type of e-commerce business, the return rate can easily go above 30%, according to Bright Pearl. Companies specializing in clothing and accessories often have return rates higher than 40%.
Meanwhile, Optoro’s State of Retail Returns 2018 report found that 71% of consumers said a positive return experience greatly encouraged them to shop at a store again, and 69% of retailers think that returns are vital to creating a good customer experience.
That return-friendly attitude doesn’t mean retailers are handling them well, though.
Over half of almost 120 major retailers who participated in the Optoro survey do not have any report or tracking method for returns, and only 45% of respondents think they are currently doing a good job at extracting additional value or profit from returned inventory.
Even though this appears to be a big problem, it’s not getting much attention from the management level: Only 3% of respondents cite reverse logistics as their biggest supply chain investment in 2018.
Returns are expensive, but they can also be fashionable
"There’s a cost of processing any return," Sucharita Kodali, an analyst at Forrester, told Supply Chain Dive. It’s not just paying for return shipping, as many companies do. There’s also a touch at every cost in the chain to process that return, and then decide what to do with it.
"There’s costs transporting inventory back and forth. There’s all kinds of transportation costs associated with this stuff, moving inventory around, putting it back on the shelf," Eric Moriarty, vice president of B-Stock Solutions, an online liquidating platform, told Supply Chain Dive.
It can cost twice as much to put inventory back on the shelf as it does to “sell the stuff in the first place,” said Moriarty.
Kodali said that there’s a hierarchy to liquidated returns. If it can be sold again, it is. If it can’t, "they may look at other options – they’ll look into liquidating it or throwing it away or they may send it back to a vendor if they can get money back from the vendor."
Returns can be particularly difficult from a logistics standpoint for large e-commerce retailers because they have so many more items.
"The returns of a physical store, it’s only going to be within a pool of 200 items," Kodali said. "When you get online returns, it’s tens of thousands."
There’s an environmental impact of returns too, on two very different fronts: there’s the carbon footprint associated with continuing to move the return around (from the merchant to the buyer, then the buyer to the merchant, and then either to a liquidator or a landfill). Then there’s the waste issue itself: 30% of returns end up in a landfill, according to Multichannel Merchant.
To retailers, the cost of returning items is just not worth it and instead, items are thrown away.
Solutions to this problem, from both a financial and environmental standpoint, are "a combination of logistics and technology that are trying to address it," said Kodali. It can be a public relations issue too: brands like Eddie Bauer, Nike and Victoria’s Secret have come under fire for not just throwing away, but also destroying merchandise before tossing it.
New liquidating solutions heat up
Kodali says there’s also a potential new market for returns that startups are starting to address. TigerTrade, for example, buys overstock and sells it to developing markets. She also sees a potential for companies like ThreadUp, which sells consignment to consumers online, to partner with retailers to re-sell returned merchandise that may not fit what they are currently selling in stores.
Another solution is the online auction model. B-Stock was formed in 2009 by former employees of eBay. "It automates your liquidation situation," said Moriarty.
Allowing these kinds of B2B auctions takes out the middleman, which saves money in terms of how much the retailer will get for their item (or items if they’re selling overstock), and in transportation since items are not being moved from the retailer to the liquidator – who then might sell it off to a smaller liquidator who sells it again.
The process also cuts down on a company’s carbon footprint. Twenty-three percent of transportation-related emissions in the U.S. come from heavy trucks, so the impact is no small number.
B-Stock also works with companies with merchandise they can’t or don’t want to invest time to sell: items like office furniture or rail cars full of industrial rolls of paper. A recent search through the B-Stock auction site showed items from iPhones to Christmas decorations to GE Appliances to watches for sale.
"There’s a lot of value in everything, and the key is finding the companies that have value in it," Moriarty said. "It’s bringing efficiency to a previously inefficient process."
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