The true cost of returns
A few articles last week explored the dirty secret around retail returns: Most don’t make it back to the selling floor.
Instead, many find their way after a lengthy process to pawnshops, dollar stores, flea markets and, sometimes, landfills.
Some aren’t returned to the selling floor because they’re unsellable in their returned condition. Fixing or repackaging an item — even for a broken seal — often takes too long for the product to find its way back to the selling floor.
Items returned that haven’t been opened or used may also take so long coming back to the selling floor that they require a heavy discount. Overall, retailers are wary of having clearance items affecting the sales of newer, full-price merchandise.
Edgar Dworsky, founder of the advocacy site ConsumerWorld.com, told The New York Times, “Especially with electronics goods, a hot item becomes yesterday’s goods so quickly. And who wants to try to sell a returned winter coat in February?”
As a result, most returned items are sold in bulk — often unseen — to liquidators, wholesalers and resellers such as Genco, which was acquired by FedEx last year. Depending on the category and condition, prices fetched range from 10 to 40 cents on the dollar.
With overall returns increasing largely due to a higher return rates online, retailers are looking for more efficient ways to manage returns.
B-Stock Solutions Inc., according to the Los Angeles Times, holds private auctions for returns in smaller select volumes, typically by the pallet-load, over the internet.
A newer software firm, Optoro, helps retailers quickly assess whether the returned item should be sent to the vendor or wholesaler, used for scrap, or sent back to the distribution center to get fixed.
But “reverse logistics” remains a low-margin business. Up to 20 percent of items acquired are unfit for sale. Michael Ringelsten, the owner of Shorewood Liquidators Inc. in Chicago, told The Wall Street Journal, “To make money in this business it is a volume game. If we can make 10 percent profit we are jumping up and down.”
- In Season of Returning, a Start-Up Tries to Find Homes for the Rejects – The New York Times (tiered sub.)
- Where Your Unwanted Christmas Gifts Get a Second Life – The Wall Street Journal (sub. required)
- Growing return of unwanted gifts spurs middleman industry – Los Angeles Times (tiered sub.)
- Optoro Raises $40 Million in Venture Debt from TriplePoint Venture Growth BDC Corporation and Square 1 Bank – Optoro/Business Wire
Is there more retailers can do to improve the efficiency of managing one-off returns? Does the internet or some other technology solution promise to lift margin rates on returned merchandise?