Dirty Little Secrets of Holiday Returns (Part Two)What happens to goods returned by consumers and how this ends up costing consumers
Yes, Santa was good to you this year. Maybe you got a wallet full of gift cards or some cold hard cash, but probably some of your presents came wrapped from retailers. Unfortunately, the gift you received at the company Christmas party exchange missed the mark. Can you return it? Ever wonder what happens to all those gifts that consumers return after the holidays?
It’s another of the supply chain logistics industry’s dirty little secrets, except this time, it is not so little.
You will not be likely to see this blasted all over social media, but here is a shock: free returns really are not free after all. The return rate for goods purchased around the holidays is approximately 2% higher than that of the rest of the year, depending upon category. Although it does not sound like much, the huge volume of returns each year amount to major money. Whether from online shopping or trips to the local shopping mall, we all have bought or received gifts that needed to be returned. Shipping and processing the returned goods costs retailers real money. One would think that retailers simply put the merchandise back on store shelves and sell the goods to the next consumer, however they would be quite mistaken.
Whether purchased from shopping online or in brick and mortar retail stores, most of the returned goods are transported to liquidators and resellers or simply disposed of as trash, if that is the least costly option. Goods are returned via a parallel process, a completely different logistical path than that process that ensures that goods reach store shelves. This is done because it often happens that the cost of restocking and reselling the returned merchandise is more than the value of those goods.
In our last blog, “Dirty Little Secrets of Holiday Returns Part One”, we mentioned that only 48% of the returned goods are resold at full rate. The rate of success in reselling goods differs based on the brand and type of product. In demand products from well established brands fare the best, reaping up to 80% of the value. Goods from lesser known brands and specific types of merchandise including clothing are often worth only pennies on the dollar.
Often the logistics path that holiday returns take is a circuitous one. Here is one such route post-return. After products have been returned, retailers usually send them back to a distribution center. Once there, the merchandise often languishes for some time. Next, the goods are shipped to a liquidator. Liquidators collect post-holiday returns of all types, warehouse them and offer them for sale at a greatly reduced price. Sometimes referred to as the “re-commerce” world, this provides new opportunities for companies to handle the unwanted goods.
Another post-return route is to returns facilities that are sometimes operated by retailers. These facilities operate as a “hub” for many sellers. The goods are shipped to the return hub facilities where they are handled, processed and then resold, sometimes by third party contractors including wholesalers and liquidators.
These third party contractors often rely on technology tools including software such as Optoro. This enables companies to use information to determine the most profitable manner of selling off goods such as online, in lots to wholesale buyers or by through recycling.
Some goods have a specified time frame in which they must be resold. This is especially true of electronics, computers and other similar merchandise. This is because of technological obsolescence. In today’s fast paced world, technology is constantly moving forward. After a period of six months or so, returned electronics and technology merchandise usually decreases in value. If retailers are unable to sell this merchandise quickly, it will ultimately languish, valueless on shelves as new technology moves in to take its place in the eyes of consumers.
Electronics and technological goods are particularly hard to dispose of due to regulations. This increases the cost of disposing of these products, further damaging the profitability of retailers.
Sometimes it is simply less expensive to dispose of the returned goods as trash. Just think about that for a moment. The very goods that may have started out across the world as mere components or ingredients are then transported to a manufacturer to be transformed into a finished product, then transported again to be warehoused, distributed then sold to consumers. The gifts consumers unwrapped this holiday season may be in a landfill, days or months later, without ever having been used once-and all after having been transported across the supply chain. The amount of energy, raw materials and labor expended to make goods that are then turned quickly into waste is staggering. Here is another dirty little secret: holiday returns have a disposal rate of 30-40%. Obviously, this diminishes profitability but it also creates billions of tons of waste annually as well as unnecessary pollution.
Retailer and the Role of Sustainability and Post-Holiday Waste
In case you wondered, every day the world generates approximately 3.5 million tons of solid waste, more than 10 times what humankind produced 100 years ago. By the end of this century, it has been estimated that the world will generate nearly 11 million tons of solid waste a day.
Along with higher sales, the amount of waste increases nearly 25% during the holiday season. this waste includes items such as gift wrap, holiday decorations, packaging, holiday food, Christmas trees as well as holiday treats and returned merchandise.
How can retailers reduce the rate of consumer product returns and subsequent waste?
- Improve on product education to consumers. First, retailers can provide accurate, detailed information about the products that they sell. Brick and mortar stores can incorporate product experts and train salespeople to better answer consumers’ questions and compare products. This can aid consumers in making better quality decisions.
- Make sure the goods that are carried are durable and less prone to damage and defects.
- Prevent goods from being damaged in brick and mortar stores. This can occur from improper handling and storage, packaging and other issues as well as by consumers and potential thieves.
- Utilize effective security measures. Preventing shoplifting, counterfeiting of receipts, fraudulent employee returns, stolen tender and other issues related to the thievery of goods aids in mitigating the returns problem as stolen goods are often returned fraudulently. These goods then are subjected to the same returns processes as goods that were purchased legally.
- Consider adding a fee to process the return of non-damaged merchandise.
Re-Commerce: the Role of Liquidators, Wholesalers & Discounters and Holiday Returns
The world of re-commerce is expanding fast, mainly to accommodate the increased rate of returned goods from increased e-commerce sales. Today, it is common for online retailers to include a contractual clause with manufacturers specifying that the returned merchandise will be liquidated.
Liquidators often make arrangements to pay large retailers a small percentage of the full retail price of the item which varies with the type of product. The liquidator then determines how to maximize the margin and pays close attention to the volume of goods. In the liquidation business, being able to sell goods at high volume is key to ensuring the greatest amount of return on investment.
Liquidators sell goods at auction. Goods that remain unsold may be offered for auction again, or may be added to a wholesale pallet of goods. Returned goods that have zero monetary or recycling value are sent directly to landfills.
Bargain hunters, pay attention. All across America, liquidation warehouses are passing along substantial savings to consumers, reselling returned goods from such retailers as Amazon, Home Depot and other household names. Companies such as Blinq sell returned goods at cut rate discounts and there are bargains to be had on open box goods at Amazon Warehouse and Best Buy Outlet.
Return Policies: How to Win the Loyalty of Consumers
Consumers value brands that focus on the customer experience (CX). The ability to process the returned goods is perceived by consumers to be central in their relationship with retailers. Consumers want to be able to buy in the manner and way that they want to make purchases, get the level of customer service appropriate to their needs, have their problems solved quickly and accurately and receive acknowledgement of their feedback. Returns tend to be viewed as associated with consumers’ view of and need for customer service.
To start with, know that consumers value information transparency and clarity. Make sure that your return policies are clear, concise and easy to understand without further explanation or examples. Consumers report their lack of trust in buying from retailers with unclear return policies and acknowledge that they are likely to shop elsewhere.
In general, retailers that offer “hassle free” returns demonstrate their ability to be flexible and trusting of consumers. According to a survey by the National Retail Federation, retailers with liberal return policies all year do not find it necessary to make adjustments during the holiday season to attract consumers. Retailers are concerned about the potential for return fraud and the costs associated with processing returned merchandise. Having a more generous return policy is often viewed as providing a competitive advantage, one likely to attract more customers. The goal in providing a liberal return policy is never to increase returns but rather to attract consumers who value leniency in returns policies, in case this would be needed in the future.
In crafting the appropriate return policy for a specific business, a retailer should first consider its objectives. To stimulate more purchases, retailers would do well to provide a returns policy that includes more lenient monetary policies and/or policies that take reduced effort. In designing a return policy to help reduce the volume of returns, including a longer deadline to make a return tends to be more effective. Findings of a study conducted at the University of Texas at Dallas led researchers to believe that the more time that consumers own merchandise, the greater the likelihood that they will be emotionally attached and less inclined to return the goods.
Consumers are typically surprised to find out that once returned, merchandise is often not resold for full price but rather ends up being liquidated at greatly reduced rates, sold in bulk to wholesalers, recycled or even sent to a landfill.
We live in a highly disposable society. It is shocking for most consumers to find out that merchandise they purchased, received as gifts or purchased for others during the holidays often ends up in a landfill weeks or months after it was returned to a retailer. Some consumers choose to shop online to reduce pollution or save time and energy only to learn of the tremendous waste resulting from returned goods that never end up being used by anyone.
The cost of returned goods diminishes the profitability of retailers. Today as traditional retail companies face off against online retailers, the battle for customers is on full force. Both groups are struggling to develop return policies that both attract customers to generate much needed sales and strike a balance by not increasing the volume of returned merchandise.
All of this has a tremendous cost that is then, somehow, funneled back to consumers. As it turns out, free returns really are not “free” after all. Think about that they next time you purchase something for yourself or for someone you know.
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