Returns Are the Retail Industry’s Quietly Mounting Logistics Problem

Returns Are the Retail Industry’s Quietly Mounting Logistics Problem | WSJ

This 165,000-square-foot warehouse is piled high with liquidated goods, including a never-ending stream of things we've all been returning. The liquidation company Quicklots estimates that about 30% of the products it receives are clearly used returns, ranging from expensive Swiss watches to items like underwear. The surge in customer returns is filling landfills and warehouses like this one to the brim. Quicklots estimates that a pile like this could be worth about $ 20,000 to $ 30,000 in retail value.

The Journey of Returned Goods

When you return an item, such as a pair of pants that doesn’t fit quite right, the solution seems easy—return it for a refund. But where do those pants end up after being mailed back? The answer is more complicated than you might think.

The best-case scenario is that the returned item gets repackaged and placed back on the shelf, ready to be sold again as a new item. However, this process is costly. Reverse logistics company Optoro estimates that, on average, it costs 66% of an item's price to process its return. For example, if a pair of pants costs $ 50, it would cost the retailer $ 33 to take them back.

Complex Pathways

Many returns travel through a complicated web of warehouses, secondary resellers, and landfills. The first stop is usually a returns processing center where the item gets inspected for damage. Each company has different standards for what can be repackaged and sold again, and many items don't meet these criteria. Optoro reported that many retailers threw away over a quarter of returned goods in 2019. The amount of returns and excess inventory that retailers send to landfills has more than doubled since 2016, from 4 billion pounds to 9.6 billion pounds.

The Secondary Resale Market

Items that aren’t thrown away filter through the secondary resale market, including retailer outlets and online auctions. One path often leads to liquidation companies like Quicklots. Retailers like Nordstrom, Target, and Best Buy send truckloads of products that include both customer returns and excess inventory, or items that never sold initially. These truckloads are bundled and sold as liquidation. Often, these items appear brand new and are hard to distinguish from new stock because they still have tags and are in perfect condition.

Quicklots sells pallets wholesale and sorts items by category and condition. Their clients include other resellers who list items on marketplaces like eBay or Poshmark, as well as discount stores and flea market stands.

The Impact of Increased Online Shopping

Customer returns across the retail industry are growing as e-commerce sales explode. According to the National Retail Federation, online returns have more than doubled from 9.6% in 2019 to 20.8% in 2021. Unlike physical stores where customers can see, feel, and smell items, online shopping doesn’t offer these sensations, leading consumers to buy more items to try them out at home.

Retailers have made it easier with long return windows and free shipping, policies originally pioneered by Amazon. Although these convenient policies delight customers, they also contribute to an overwhelming volume of returns.

Costs and Solutions

Even though offloading returned goods to liquidators can provide relief and a way to recoup some losses, the process still eats into retailers' bottom lines. Retail isn’t a high-margin business, and the costs associated with returns further cut into profits. However, it’s challenging to track the actual cost because responsibility is dispersed among different departments within the organization. For many retailers, the total cost of reverse logistics goes unmeasured.

As returns increase, some retailers are beginning to change their policies, but these changes are not widespread. Companies selling products that are readily available on other websites will find it challenging to tighten return policies without losing customers.

Rick Emling from Optoro says consumers have little idea about what happens to returns once they're dropped off, but suggests that increased transparency will eventually lead to change.

Keywords

Returns
Liquidation
Quicklots
Warehouse
Reverse Logistics
Optoro
Secondary Resale Market
E-commerce
Online Returns
Customer Service Policies
Bottom Line
Retail Industry

FAQs

Q1: What percentage of returns are thrown away by retailers? A1: According to Optoro, many retailers threw away over a quarter of returned goods in 2019.

Q2: How much does it cost to process a return? A2: Optoro estimates that it costs on average 66% of the item's price to process its return. For example, if a pair of pants costs $ 50, it would cost $ 33 for the retailer to take them back.

Q3: What happens to items that can’t be resold? A3: Items that can’t meet the repackaging standards of retailers often end up in landfills or get filtered through the secondary resale market.

Q4: How has the growth of e-commerce impacted returns? A4: As e-commerce sales increase, so do online returns, which have more than doubled from 9.6% in 2019 to 20.8% in 2021.

Q5: Why do retailers continue to offer lenient return policies despite the costs? A5: Retailers offer lenient return policies to maintain customer satisfaction. They’d prefer to absorb the costs rather than risk losing customers to competitors with more favorable return policies.