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

Summary

The video delves into the growing issue of consumer returns and its impact on retailers. As e-commerce flourishes, so do returns, which have risen significantly. Returns are costly, with processing fees sometimes surpassing the value of the returned item. Many returned goods end up in landfills, while others are resold through liquidation companies. Retailers, in an effort to minimize losses, send surplus goods to liquidators or discount stores. The video emphasizes the challenges of managing returns and how they affect pricing, with a focus on the complex journey of returned products and their environmental impact.

Takeaways

• 😀 Retail returns are causing significant environmental and logistical challenges, with 30% of returned items being clearly used.
• 😀 Processing returns is costly, with reverse logistics companies estimating that it costs 66% of an item's price to process a return.
• 😀 Around 25% of returned items are thrown away, contributing to the rising issue of landfills filling up with unwanted goods.
• 😀 Returns contribute to an increasing number of unwanted goods, with the amount of returns sent to landfills more than doubling since 2016.
• 😀 Liquidation companies like Quicklotz receive massive volumes of customer returns and excess inventory, often bundled together.
• 😀 The secondary resale market, including outlets and online auctions, plays a key role in handling these goods after returns.
• 😀 Retailers like Nordstrom, Target, and Best Buy use liquidation companies to offload products, including returns and unsold inventory.
• 😀 As e-commerce sales increase, so do online returns, with return rates growing from 9.6% in 2019 to 20.8% in 2021.
• 😀 Retailers have made returning products easier with long return windows and free shipping, which in turn increases customer returns.
• 😀 Despite the inconvenience and cost, retailers prefer to absorb return costs rather than risk disappointing customers.
• 😀 Many retailers are not tracking the full cost of reverse logistics, which leads to inefficiencies and higher overall expenses.

Q & A

What percentage of products received by liquidation companies are used returns?

Liquidation company Quicklotz estimates that about 30% of the products it receives are clearly used returns.

What is the typical cost for a retailer to process a return?

Reverse logistics company Optoro estimates that on average it costs 66% of the price of an item to process its return. For example, if a pair of pants costs $50, it would cost the retailer $33 to process the return.

What happens to returned goods after they are processed in a return center?

After being processed, returned goods are either repackaged and resold as new or discarded if they don't meet the standards for resale.

How much of returned goods were thrown away in 2019?

Optoro reports that many retailers threw away over 1/4 of returned goods in 2019.

How has the amount of returns sent to landfills changed from 2016 to 2019?

The amount of returns and excess inventory sent to landfills has more than doubled from 4 billion pounds in 2016 to 9.6 billion pounds in 2019.

Where do unwanted goods go after being processed in return centers?

After processing, unwanted goods are often sold through a secondary resale market, which includes retailer outlets, online auctions, and liquidation companies like Quicklotz.

Why do retailers choose to liquidate returned goods rather than handle them internally?

Retailers often choose to liquidate returned goods because their core business is retailing, not managing rejected inventory. Liquidating allows them to streamline the process.

What is the impact of e-commerce on return rates?

As e-commerce sales have exploded, online returns have more than doubled, increasing from 9.6% in 2019 to 20.8% in 2021.

How have return policies affected consumer behavior?

Retailers, especially Amazon, have made returns easier with long return windows and free shipping, which has increased convenience for consumers and led to higher return rates.

What are the financial implications of returns for retailers?

Returns affect retailers financially by increasing costs, particularly in reverse logistics. These costs often reduce profit margins, especially for high-margin businesses.