Merchant Innovation

Retailers Cash In On Returns

Now that the season of giving is done for, consumers have another traditional pastime to turn to: returns. Whether they didn’t get the perfect gift or need to send items back for different sizes, nearly one-fourth of all annual returns occur in the post-holiday period, according to the National Retail Foundation. And as online retailers have offered more generous shipping policies to increase consumer confidence in a tactile-free purchasing environment, a fair expectation is that brands might stomach heavy losses as returns scale up.

However, some startups are trying to transform returns into yet another source of revenue.

The New York Times reported on the logistic startup Optoro’s mission to solve a longstanding problem in how retailers manage returns, particularly from online orders. Tobin Moore, CEO of Optoro, told The NYT that while most brands are built to withstand a slight to moderate loss from returns in exchange for the higher sales, increasing orders from the digital revolution have created a new dynamic in the shipping process. Instead of returned products going back to the original retailer for reshelving, many items are rerouted to wholesalers and liquidators, but if no buyers are found, items are simply thrown in the trash.

How many perfectly good yet unwanted merchandise is chucked each year? According to The NYT, about 2 million tons worth.

“The way we consume right now isn’t sustainable,” Moore said. “We can’t keep throwing stuff away. There’s a better way.”

Much like logistics startups that help retailers search the wide spectrum of shipping channels to select the most efficient delivery routes, Optoro works by reversing that process for returned items. Instead of letting stock languish in warehouses just to be hauled to the dump months later, Optoro claims to find the most efficient resellers on the market — one of which includes Blinq.com, Optoro’s own open-box resale site. According to Moore, this process can save retailers anywhere from 50 to 70 percent of their return costs, almost double the industry average of 20 to 50 percent.

“There always will be returns, but there will always be someone who wants them,” Moore told The NYT.

Moore may not know just how right he is. While the market for returns on actual items has been around for years, Target is starting a new bid for returns in a more intangible form: gift cards. CNN Money reported that Target has begun a campaign to offer shoppers the ability to trade in gift cards meant for other retailers for a reduced price Target gift card. While the exchange rate is variable, Target said that a $100 Walmart gift card would net shoppers an $85 Target one.

Target partnered with Cardpool and electronic exchange company Nextworth to implement the program which is live in 1,562 Target locations to start 2016. If Target can manage to find success on the backs of its competitors by poaching gift card sales away from them well into the post-Christmas period, it might just induce Walmart and others to do the same and kick off a veritable returns arms race among retailers.

One such race is already playing out among investors in what The NYT called the “reverse logistics” industry. Optoro has secured a total of $800 million in funding from Silicon Valley VCs, and its main competitor, Genco, was acquired by FedEx in 2014 after processing about $1.6 billion in sales.

The science of making returns smarter might not catch the eye of high-spending consumers, but it’s sure to become a critical one as the online shopping industry continues to give shoppers what they want and when they want it. In this way, online merchants have to fight a two-front war for shoppers’ digital wallets that doesn’t look like easy pickings for any fighter.

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