February 28, 2002, 12:00 AM

How low can you go: Returns processors find a new way to unload less-than-perfect returns

No more junkyard: Returns processors find a new way to dispose of less than perfect returns—sell them to consumers.

In the brick-and-mortar world, returned goods bounce back along several stops in the secondary market supply chain-there’s retailer, manufacturer, outlet stores, dollar stores and finally jobbers who buy used merchandise by the truckload and ship it to flea markets or out of the country. Now, the last few stops on the chain have new competition, and it’s on the Internet.

With the explosion of the online marketplace, returns processing companies and auction management services, sometimes acting in tandem, see the possibility of recouping more on the value of returned merchandise. How? By going directly to consumers with the same rock bottom pricing consumers find at the farthest reaches of the secondary market. That way, retailers don’t have to wait for the product to wend its way down the chain and sacrifice more of their original cost to handlers at each level. By eliminating some steps, they’ll keep more on each dollar.

At least, that’s the plan behind three online offerings that sell returned merchandise that’s too far gone to make it back onto store shelves or back to the manufacturer. Retail returns processor ReturnBuy.com Inc. not only liquidates new, unopened and like-new returned merchandise for its retail clients online under Brand New Buy and ReturnBuy brands, it also operates a third storefront and listing service called Real Crazy Mo’s. That offering is stocked with the distressed consumer electronics goods that might otherwise find a home in a truckload headed for salvage.

Reverse logistics services provider Genco Distribution System, which similarly liquidates like-new returned merchandise for retailers through a variety of channels, is also now mining its returns centers for distressed consumer electronics returns to stock its brand-new eBay storefront and listing service, Delivery Dog. And in February, online secondary market seller eValueville.com, which already sells like-new merchandise on behalf of five major apparel retail clients on its own site and through auction sites, was scheduled to debut an online offering, Returns for Less, to sell clothing and distressed merchandise that can’t be presented as like-new.

The bargain basement, buy-it-at your-own risk online sales vehicles for merchandise that’s been around the block are just one wrinkle in attempts to resolve the retail problem that won’t go away. Returns are a fact of life for merchants, with anywhere from 8% to 35% of retail sales winding up as returns. Some estimates place the return rate higher for some categories of goods purchased online.

90 million online returns

Jupiter Media Metrix estimates that by the time online retail spending reaches $118 billion in 2005, the value of goods returned from an estimated 90 million online transactions will top $5.8 billion. Of the returned merchandise that can’t go back to the sales floor or back to the manufacturer by prior agreement, perhaps only 8% to 12% can be sold in the secondary market as like new, estimates Pete Rector, senior vice president of Genco. The rest is liquidated through various channels, of which online auctions have proven to be one of the most profitable.

Retailers’ return on salvaged goods that can’t be liquidated as like-new or close to it varies by category. It could be 10% of original cost or less for apparel that’s seen better days, and edge up to 40% for other types of goods, still in original boxes, whose main problem is that they are last year’s model.

Though these particular online offerings are an attempt to test whether there’s a higher-paying submarket for distressed goods that might otherwise go to salvage at a few cents on the dollar, web auctions already have proven their worth to retailers as an effective way to move returned merchandise in good condition-one reason a number of service providers have sprung up with software and services to help retailers put up their own auctions as well as launch them on eBay, Amazon and Yahoo. Though it varies by category, online auctions will recover for retailers on average three times what they would if they were sold as part of a truckload.

Sometimes more, says Rector, citing the auction dynamic’s well-know feeding frenzy that can bid up a product beyond its original value. A bicycle that sold for $69.99 at one of Genco’s retail clients recently went for 150% of its value on an eBay auction. “Baby strollers that may have gone for $80 at retail have gone for more than $100,” he says. “Though it varies by category, auctions can recover 70% to 80% of the price of goods, whereas handing it off to a jobber might get 20% to 25%.”

Testing

Though it delivers lower price points, the auction dynamic can work on end-of-model, distressed, and semi-functional or nonfunctional merchandise as well. That makes offerings such as Delivery Dog, Real Crazy Mo, and the soon-to-launch Returns for Less good news for the handling of returns in particular. Though the auctions also dispose of surplus goods, these are more often new, never sold, and therefore easier to move. The one-stop-above salvage online offerings provide another needed option for harder-to-move goods that have already been out in the marketplace-and show it in their condition.

These elements of the providers’ broader storefront/auction listing services operate under the premise that there’s a consumer market out there for certain goods that might otherwise go out to bulk liquidators at salvage rates. Genco, for example, puts returned goods online through a partnership with auction services provider Slingshot Solutions. Slingshot Solutions launches the auctions, branded not under the Genco name or that of the retailer, but under a branded “Slingshotman” icon to eBay, Yahoo and Amazon. The auctions also are reachable thorough a link on Slingshot Solutions’ own web site.

Before listing the returned merchandise for auction, Genco tests the products to ensure that goods to be advertised as like-new actually meet that standard. That inspection leaves a bunch of products that didn’t make the cut, yet still might have value to consumers. “Let’s say a DVD player has 12 functions and they all work except surround sound,” Rector says. “We’ll put that up on Delivery Dog and post the information about what doesn’t work. We think there’s still a market for someone who’s handy or looking for parts.” Maybe-but is it a market that will deliver more return on such items as one-offs than if they were part of a bulk truckload to a liquidator?

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