Wall Street Journal Report: Returns Are the Retail Industry’s Quietly Mounting Logistics Problem

Introduction

In a sprawling 165,000 ft² warehouse, stacks of liquidated goods are evidence of the increasing complexity that retailers face with customer returns. A significant portion of these returns originates from the growing trend of online shopping, where items are frequently returned for various reasons, including size discrepancies. Quick Lots, a liquidation company, estimates that about 30% of the goods they receive are used returns—often from expensive items like high-end watches.

The issue of excessive returns has escalated, contributing to the problem of overflowing landfills and warehouses. A single pallet of returned goods can represent $ 20,000 to $ 30,000 in retail value, reflecting a broader trend that is overwhelming retailers. When consumers return an item, like a pair of pants purchased online, the process of addressing that return is much more complex than it appears. Optoro, a reverse logistics company, highlights that it typically costs retailers about 66% of an item's purchase price to process its return. For example, if the returned pants cost $ 50, the retailer may incur a cost of $ 33 to manage that return.

Returns typically go through a convoluted system that includes returns processing centers, secondary resellers, and even landfills. Upon arrival at a returns processing center, items are inspected for damage and categorized based on various standards for resale. In 2019, many retailers disposed of more than a quarter of all returned goods, a number that has grown significantly over recent years. The overall amount of returned items that are sent to landfills has doubled since 2016, from 4 billion pounds to 9.6 billion pounds.

Once processed, these unwanted goods often make their way to liquidation companies like Quick Lots. Major retailers such as Nordstrom, Target, and Best Buy send truckloads of excess inventory and returns to these companies, which then sort the items for resale. The buyers of these goods range from small business owners operating in flea markets to large online resellers.

The surge in online shopping has made returns more common, exacerbating the issue. According to the National Retail Federation, returns across the retail sector have risen sharply, doubling from 9.6% in 2019 to 20.8% in 2021. This increase is largely attributed to the ease of returns facilitated by attractive policies from major retailers, including extended return windows and free shipping. This environment compels consumers to buy more items to gauge their preferences, especially as online shopping lacks the tactile experience afforded by physical stores.

The financial implications of such return policies weigh heavily on retailers who often find themselves choosing between managing excess returns and risking customer dissatisfaction. The cost of returns is ultimately passed on to consumers through increased prices on merchandise. Despite the potential for recovery through liquidation, retailers remain concerned about the impact of returns on their profit margins, which are already slim.

Though some companies are beginning to reevaluate their return policies in response to increasing costs, these changes are not yet widespread. Retailers that sell items found on various other sites face mounting pressure to offer comparable return policies, or risk losing customers to competitors with more favorable terms. Transparency about the fate of returned items remains minimal, but as consumers become more aware of their environmental impact, that could change.

Keyword

Retail returns
Logistics problem
Liquidation companies
Reverse logistics
Online shopping
Excess inventory
Returns processing centers
Landfills
Cost of returns
Consumer dissatisfaction

FAQ

Q: What percentage of returned goods are used?
A: Quick Lots estimates that about 30% of the products received are clearly used returns.

Q: How much does it cost retailers to process a return?
A: On average, it costs about 66% of an item's purchase price to process its return.

Q: How has the rate of online returns changed?
A: The rate of returns has more than doubled from 9.6% in 2019 to 20.8% in 2021.

Q: What happens to returned goods?
A: Returned goods may be inspected and potentially be repackaged for resale, sent to liquidation companies, or disposed of in landfills if they do not meet reselling standards.

Q: How do return policies impact retailers?
A: Retailers often absorb return costs to maintain customer satisfaction, which can ultimately lead to increased prices for consumers.