Target and Toys R Us posted overall sales declines during the holidays.
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Finally, there’s the gavel solution. The Internet has made an already-big secondary market for returns and overstocks even bigger. Retailers are liquidating returns with direct-to-consumer sales on auction sites such as eBay as well as through specialized auction sites. The Return Exchange model recovers added value for retailers by taking goods from the merchant and auctioning them directly to consumers through its own or other auction sites. In traditional distribution channels, liquidated merchandise typically must change hands several times-with a mark-up each time-before reaching the consumer. The direct-to-consumer auctions thus snare value for the retailer that would otherwise be shared through the distribution chain.
As e-merchants come under increasing pressure to build the bottom line, marketing and fulfillment may get the lion’s share of attention. Returns processing, though hardly sexy stuff, is an overlooked source of cash, Bianco and others say. “Our challenge,” he adds, “is to get Internet retailers to understand that this is a way to get rid of headaches and increase margins.”
OK, where do you want ’em?
Devising a returns policy that keeps customers happy without draining resources can be difficult enough, but Web retailers that solve the problem still must decide what to do with the merchandise once the customer sends it back. The messy, inconvenient reality of returned goods often has little place in the business plans of many e-retail startups. But those lacking an effective system soon may see their desktops doubling as warehouse space for returned merchandise-and the costs mounting.
Brick-and-mortar retailers use a four-step process to sort and dispose of returned goods once they’re received. Rather than letting goods pile up on the conference room floor, e-retailers with no brick-and-mortar channel must find a way to economically outsource the same functions if they hope to recapture any value in returned merchandise.
-Inspecting: The warehouse equivalent of emergency-room triage, this separates returns into those in shape to go directly back into the sales channel, those that need to be restored first, and those that should be liquidated.
-Refurbishing: A little steaming may restore an unworn, returned jacket to top condition, allowing it to be sold for what it is: new. But even if the returned merchandise is headed for a secondary market, retailers can recoup more value if tops and bottoms match and all the product’s parts or pieces are intact.
-Restocking: With no brick-and-mortar store in which to reshelf or rehang returned goods, agreements with suppliers concerning returns become critical. If the product can’t be returned to the supplier’s inventory, the retailer will need to find a secondary outlet to get it back in the commerce flow.
-Dumping: Some stores depend on other retailers’ returns for their own inventory. Auction sites offer retailers a way to dispose of still-usable merchandise that they can’t resell. When other markets can’t be found for returns-or when handling and processing costs exceed the anticipated recapture of value-the best destination may be the landfill.
Reverse logistics 101
How can retailers and manufacturers recoup top dollar from returned goods? Where are the secondary market outlets for recovered goods? Can one distribution center handle forward and backward logistics equally well?
These questions, long simmering among brick-and-mortar retailers, are moving toward the front burner as the Web accelerates the growth of commerce. Reverse logistics is increasingly recognized as potential competitive tool-not merely a back-office function. The topic has even spawned its own think tank, the Reverse Logistics Executive Council, headquartered at the University of Nevada business school in Reno.
The not-for-profit consortium of retailers, manufacturers and academicians has taken on reverse logistics to identify best practices that reduce costs. Recent reports on reverse logistics in the consumer electronics and apparel industries can be downloaded from the group’s Web site at www.rlec.org; as can an entire book on the subject, Going Backwards: Reverse Logistics Trends and Practices.
“The biggest challenge facing online retailers in the area of returns is just getting them to pay attention to it,” says council director Dale Rogers. “They’re starting to-because clearly it’s a big cost.” Reverse logistics, he adds, represents about 0.5% of the nation’s GDP. “The opportunity for third-party providers that want to manage that process for online retailers is huge.”