The true cost of returns

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Discussion
Photo: RetailWire
Jan 04, 2016

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.”

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?

Braintrust
"There are several things a retailer can do to improve the efficiency of return management. The most appropriate would be to determine the cost of returns to the company and incorporate that cost in the pricing model. Hopefully many do that today."
"I do agree that the returns process as it exists today is incredibly inefficient, and it needs to improve. Wardrobing — the practice of ordering several sizes or colors in order to try out at home and then keeping one and returning the rest — isn’t going to go away."
"Way, way back in the day I developed a returns management system for a catalog retailer of apparel. The merchandise returned in several conditions: Ready to be re-shipped; Needing steaming (in-house); Needing cleaning (sent out); Not good enough to re-sell."

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13 Comments on "The true cost of returns"

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Bob Phibbs
BrainTrust

Those with a brick-and-mortar location can do much more to train employees. In apparel stores, the fact is 70 percent of the purchasing decision happens at the dressing room. If done in-store only about 8 percent return, if online, 30+ percent.

Imagine if Hilton had to refund 30 percent of their purchases because guests were unsatisfied. They’ve effectively solved the “whim” consumer with prepay, cancellation limits and more. Perhaps it’s time to look at elements of such a model as retailer margins are not going to be increasing in 2016.

Frank Riso
BrainTrust

There are several things a retailer can do to improve the efficiency of return management. The most appropriate would be to determine the cost of returns to the company and incorporate that cost in the pricing model. Hopefully many do that today. There are return fees or restocking fees that are sometimes used but not to the liking of the consumer. Lastly a retailer could set up a return department as a profit/cost center to manage returns and get most if not all product fit for resale.

Nikki Baird
BrainTrust
So there is two sides to this equation. One is the returns process in general, where for centralized returns it does take too long and it keeps too much inventory out of play to evaluate returned goods and (if possible) prepare them to be sold again. It’s a little ridiculous when you think about it, though, considering how quickly that decision can be made in a store. But stores are also contributing to making this problem bigger, because of buy online/return to store. Now you might have orphan items that aren’t a part of that store’s assortment, and what should the store do? Is it worth it to dump it into that black hole of a central returns process? Just mark it down? I think ship-from-store can help solve this problem, by putting the inventory back in play online and then making orphan inventory a priority to ship out to meet online demand. But I do agree that the returns process as it exists today is incredibly inefficient, and it needs to improve. Wardrobing — the practice of ordering several sizes or colors in order to try out at home and then keeping one and returning the rest — isn’t going to… Read more »
Paula Rosenblum
BrainTrust

Way, way back in the day I developed a returns management system for a catalog retailer of apparel. The merchandise returned in several conditions:

  • Ready to be re-shipped;
  • Needing steaming (in-house);
  • Needing cleaning (sent out);
  • Not good enough to re-sell.

There were only a couple of warehouse personnel whose job it was to make that call on returns.

Retailers just have to get used to the fact that they are going to get a lot of returns from direct sales, and train store personnel on those four dispositions. Of course, it’s simpler for hard goods or DIY. Fixable or not?

Bottom line, it’s yet another education process that requires store associate training.

Mel Kleiman
BrainTrust

This is one with no simple solution or maybe not even a hard solution. Lots of ideas present and I am sure every retailer is looking for a solution.

If I were a retailer, one that I would give a try is to follow the used clothes sellers like Kid To Kid or Plato’s Closet and open some shops that are all used items that are quickly determined could not be put back on the shelf.

Let those specialty stores determine best way to deal with everything.

Ralph Jacobson
BrainTrust

The problem of returns has been a challenge since I was a store manager in the ’80s. With online commerce growing exponentially, and with the fact that online shopping precludes the shopper from touching the product until delivered, returns are expected to continue to plague the industry. Retailers can begin to mitigate the risk by training store staff to better interact with shoppers on the floor and help them with their purchase decisions. That’s a start for physical stores. For online, LIVE chat is a great way to intercept the shopper prior to purchase. Ensuring the chat invitation is more than just a “Do you want to chat?” statement can help suggest the shopper ask questions before purchasing.

Once the returns come back to the store or DC, retailers need to have an intentional process to maximize the potential margin by working with suppliers to resell this merchandise ASAP.

Anne Howe
BrainTrust
I spent time in a large Macy’s store on December 27th. (this store is in one of the most upscale malls in the Midwest) The store had dozens of large piles of returns just thrown on the selling floors in five or six different apparel departments I visited. The lines at each register were five or more people deep and there was no staff on the floor to deal with the inventory being returned. I quizzed several associates, took pictures for a future blog post and was absolutely appalled at the general lack of concern about what the departments looked like. The worst was the pajamas and intimates department, followed by children’s and coats. The staff at the register in intimates just shrugged and said “we’ve got nowhere to put this stuff.” I have to admit it made me think hard about possible solutions, and I wonder if the software models and the Genco model make more sense than adding staff to immediately assess resale value and get those goods back on a route to a rack somewhere within 48 hours. Here’s what I will say. This mess in the store makes a great case for the sensibility of a… Read more »
Shep Hyken
BrainTrust

Returns are part of retail. The cost is usually built into the price of all items. If possible, create a return program with the manufacturer or the distributor.

The ideas in the article are all good. The question is whether or not spending the time and money to do so costs or is worth more than the effort or program that is put into place.

One other idea is to donate returned items that can’t be resold to charity.

J. Kent Smith
BrainTrust

Thing about returns is that they are inevitable. The question becomes what to do about it. Yes, there are technologies that can decrease probabilities, some as simple as accurate and meaningful content, clear sizing, and such. But insofar as returns will persist — and they will — the question isn’t how to minimize the cost, it’s how to capitalize on the opportunity.

Sounds perhaps controversial, but the return is a repeat visit either in-store or online. So as things are returned, how do you entice them to swap for something else, or even add to the purchase? How do you take something negative and reverse it? As one very successful merchant told me, “a return accomplishes something that so much advertising does not — it gets someone into the store.”

gordon arnold
Guest
6 months 21 days ago

The increased costs associated with a software returned goods assessment application will serve first to narrow the scope of returnable goods. The best means to lower these losses is to remove the vague policies and procedures along with ownership of staffing that is trained and empowered to complete the task.

Lee Kent
BrainTrust

The problem of returns is not going away anytime soon and will likely increase with the increase of online buying. So what is the answer?

Obviously there isn’t any one answer, however, I do believe that technology and the right process can help greatly. A dedicated department that serves the customer quickly and conveniently is a good start.

Provide the customer with some kind of “return bag,” with a bar code on it, that can be sealed when the item is enclosed, an accompanying ticket for the customer to keep, a drop off location where they scan the bag in and leave, an app where the customer can track that the item has been received and see that their refund has been processed, a dedicated staff that will assess the return, enter back into online inventory, source out or return to vendor.

Okay, Okay, it’s not as easy as that, but you get the idea.

For my 2 cents.

Kenneth Leung
BrainTrust

Given the pressure on the sales floor, the only way to improve efficiency of returns management is to ship to regional/central location for processing to either sell online or partner with a preowned store in the case of clothing. Using in-store labor given current shortages, I don’t think works. If companies like Zappos and Amazon can make returns work as part of the process of shipping, so should traditional retailers.

Kai Clarke
BrainTrust

Yes. Minimizing returns is a question of customer service. Keeping customer’s happy, before they purchase something, ensures that the foundation is laid. However, following up on their happiness after the purchase determines the strength of the retailer, and ultimately the relationship of the retailer with the customer, and the retailer’s suppliers.

wpDiscuz
Braintrust
"There are several things a retailer can do to improve the efficiency of return management. The most appropriate would be to determine the cost of returns to the company and incorporate that cost in the pricing model. Hopefully many do that today."
"I do agree that the returns process as it exists today is incredibly inefficient, and it needs to improve. Wardrobing — the practice of ordering several sizes or colors in order to try out at home and then keeping one and returning the rest — isn’t going to go away."
"Way, way back in the day I developed a returns management system for a catalog retailer of apparel. The merchandise returned in several conditions: Ready to be re-shipped; Needing steaming (in-house); Needing cleaning (sent out); Not good enough to re-sell."

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