Returns are a big — if unsung — part of the holiday season. According to data compiled by B-Stock Solutions, a marketplace that liquidates returned merchandise for retailers like Amazon, Macy’s, Target, Costco, Walmart, Home Depot, and Best Buy, if Q4 is all about holiday spending, Q1 is all about handling the wave of returns that the experts have dubbed Returnageddon.
About one-third of consumers will return something when all the holiday excitement is said and done, adding up to over $90 billion in value. Trendy women’s apparel, specialty kitchen items, tools, seasonal items and toys lead the pack when it comes to items sent back — and there is a lot of it. According to B-Stock’s figures, the number of truckloads of returned merchandise doubles in Q1 as the inventory the firm sees from its clients spikes up 60 percent. All in, 25 percent of returns take place during the holiday season — and the number of returns has been growing. As of 2017, returns were up 50 percent from 2015 and 35 percent from 2016.
It’s a result that isn’t much of a surprise, PYMNTS' Karen Webster noted in this week’s edition of the Monday Conversation with B-Stock Founder and CEO Howard Rosenberg, given the nature of online shopping itself. The digital experience makes it easier to click, buy and take a chance — and then return to sender with minimal fuss if that purchase fails to wow when it shows up in person.
And retailers, Rosenberg noted, really have no choice but to make that return process as free, easy and painless as possible for the consumers.
“If they don’t, the customer is one click away from a retailer that is providing that risk-free return experience,” he said. “The cost of doing business is making returns simple.”
But for retailers, he noted, the challenges with what to do with those returns as they come in — particularly when they come in wave form after the holidays — is far from simple. And making the wrong choices can be expensive for retailers, both in funds lost to items dealt with inefficiently, and in time lost trying to figure out what to do.
“There is a ton of money being left on the table. Simply by addressing this stuff more quickly, you add value because nothing goes up in value sitting in a warehouse,” Rosenberg pointed out. “The faster you get rid of it, the faster you stop soaking up depreciation. Just by moving more quickly you can make more money — and taking a different approach, that is where the really big advantages can come in.”
Because while the digital age has made returns easier than ever for consumers, it has also opened up possibilities for being strategic with returned items in ways that involve something other than just knocking money off with a discount. In the era of the modern supply chain, liquidations are a strategic part of managing the inventory mix, if used correctly.
Fording the Flood of Merchandise
Of the truckloads of goods that are going to be flowing back to retailers starting next month, only about 10 percent will end up back on shelves, according to B-Stock’s figures. Much of that is a financial decision for retailers: if it costs twice as much to sell a product the second time because of all the handling that goes into getting it back into position on a store’s shelves, it’s just not worth it. The best-run retail environments, Rosenberg said, do very intense analysis on the ROI of putting something back on the shelf or not.
And in early Q1, he noted, a whole other set of concerns come into play.
“After the holiday the tsunami of returns comes back, retailers also have to evaluate whether they have space and time to get it back to where it needs to go, or if they just need to have it out, way and gone. There is a pressure relief valve issue that comes into play.”
And retail logistic operations in the digital age, he noted, have gotten more specialized so that a entirely separate center runs forward logistics from the one that manages returns.
“And everything that comes in from the consumer has to be looked at and evaluated for consideration to make sure coffee hasn’t been spilled on it or the remote control hasn’t been lost,” he said. “Retailers don’t want to sell something that is not in pristine condition — and it is very individual from one retailer to the other on how these operations are configured.”
And once those items are properly sorted, in this new world of complex and prolific returns the next decision the retailer faces is what to do with all of this inventory.
A popular strategy, and one with many faces and names, is the extreme-discounting method in which “unwanted products keep getting red lines through their prices until someone buys it,” he said. These are the outlet stores, the online off-price portals, the flash sales and the clearance tabs on websites. “These have all be around for a while — and they are becoming very prevalent today.”
This allows brands to move their inventory, he said, with the downside of forcing them to train their consumers to wait for a sale, comfortable in the knowledge that the 50 percent to 70 percent discounted iteration of the products will be appearing somewhere in the future.
It’s a method, he noted, but not one that B-Stock specializes in, as these are all ways to sell to a consumers, and B-Stock’s business in liquidation.
“Liquidation is getting rid of stuff that you could not sell to a customer,” Rosenberg told Webster.
And though it has been unpopular in the past, liquidation is starting to present itself as a better option for brands hoping to recoup some losses on returns without resorting to extremely deep discounts.
Liquidation’s New Groove
Historically, said Rosenberg, retailer’s didn’t much like considering liquidation as an option, because it was not financially rewarding — recouping about 15 percent was average. In that environment, he noted, marking items down by 70 percent was still overall a better value just because liquidation was so close to giving the product away.
“When I started this business 10 years ago this was an area that firms had not paid a whole lot of attention to. It was mostly a necessary evil backroom happening because no one wanted to know anything about it.”
But that isn’t the case anymore — there are some product categories where B-Stock will be able to recoup 85 percent of retail. That, he noted, isn’t the norm, but the reality is there is so much competition in some categories that retailers are almost certainly better off selling to B-Stock by the pallet than taking off 70 percent and trying to sell it to a customer.
“And as a retailer, you would rather have your buyers think 50 percent off is as good as they are going to get, instead of giving them a reason to wait around to try to catch 70 percent off; you don’t want to train them to that. That can’t be the best outcome.”
Retailers can always try to limit returns, he said, but that doesn’t have a historically strong track record at doing much other than angering consumers. Efficiency, he said, will be the solution to handling returns going forward, but trying to take it out on the consumer side isn’t realistic when free returns are table stakes in eCommerce in 2018.
But there are efficiencies in places like returns — and in under-considered parts of the supply chain like liquidation. And those efficiencies, he said, can turn up savings that are more than strategic, but actually really significant to the bottom line
“The average retailers does about 1 percent or 2 percent of their revenue from liquidation sales. If you are a $50 billion retailer, that is $500 million. If we can improve that recovery rate by 20 percent — that’s $100 million to your bottom line.”