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

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

The retail industry is facing an increasingly significant logistics problem: mounting returns. As online shopping continues to grow, so does the number of customer returns. This poses a challenge for retailers as they have to deal with the costs and complexities of processing and managing returned goods.

A prime example is a 165,000 square foot warehouse filled with liquidated goods, including a large number of returned items. According to liquidation company quicklots, around 30% of the products they receive are clearly used returns. These returned goods, which include everything from clothing to electronics, are piling up in warehouses and filling landfills, presenting an environmental concern.

The process of handling returns, known as reverse logistics, is costly for retailers. On average, it costs about 66% of the price of an item to process its return. This includes expenses related to inspection, repackaging, and potential resale. For example, if a pair of pants worth 50isreturned,itwouldcosttheretailer50 is returned, it would cost the retailer 33 to process the return.

Returns travel through a complex web of warehouses, secondary resellers, and even landfills. At returns processing centers, items are inspected for damage. However, many goods don't meet the standards to be repackaged and sold again. Optoro, a returns optimization company, estimates that over a quarter of returned goods were thrown away by retailers in 2019. The amount of returns and excess inventory sent to landfills has more than doubled since 2016.

Among the various paths for returned goods are secondary resale markets. Liquidation companies like quicklots play a crucial role in this process. Retailers, including major brands like Nordstrom, Target, and Best Buy, send truckloads of customer returns and excess inventory to such companies. Liquidators sort these items by category and condition before selling them wholesale to resellers, ranging from online marketplaces to discount stores.

While e-commerce sales continue to rise, so do customer returns. The National Retail Federation reports that customer returns across the retail industry have more than doubled in recent years, from 9.6 million pounds in 2019 to 20.8 million pounds in 2021. The convenience of online shopping, coupled with generous return policies and free shipping, encourages customers to buy more items but also leads to more returns.

Dealing with return goods can be a burden for retailers, which is why offloading them to liquidators can be an appealing choice. It allows retailers to recoup some loss and avoid the cost and effort of managing returns themselves. However, returns still impact the bottom line. The costs associated with returns ultimately get factored into the prices charged for items, affecting consumers.

Despite the mounting problem of returns, many retailers are not prioritizing dealing with returned items. Retail margins are low, and the costs of processing returns eat into those margins further. Companies need to start measuring and addressing the costs of reverse logistics to mitigate the impact on their bottom line.

Keywords:

Returns, Retail industry, Logistics, Reverse logistics, Customer returns, Mounting problem.

FAQ:

  1. What percentage of returned products are used?
  • According to liquidation company quicklots, approximately 30% of the products they receive are clearly used returns.
  1. How much does it cost a retailer to process a return?
  • On average, it costs about 66% of the price of an item to process its return.
  1. How much have customer returns across the retail industry increased?
  • Customer returns have more than doubled in recent years, from 9.6 million pounds in 2019 to 20.8 million pounds in 2021, according to the National Retail Federation.
  1. What are the costs associated with returns?
  • The costs of processing returns, including inspection, repackaging, and potential resale, ultimately increase the prices charged for items, which affects consumers.
  1. How are retailers dealing with returns?
  • Many retailers offload returned goods to liquidation companies, which sort and sell them wholesale to resellers. However, this approach does not address the underlying issue of return logistics.