Wall Street Journal – by Laura Stevens
The holidays may be over, but returns season is just getting started.
Ill-fitting sweaters, the wrong Frozen doll and unwanted accessories will be heading back to U.S. retailers, many in the same boxes they came in.
More than 20% of returns happen during the holiday season—about $60 billion in merchandise, according to Optoro, a logistics provider.
The U.S. Postal Service handled 3.2 million returns in the two weeks that followed last Christmas and said there will be even more this year. United Parcel Service Inc. expects to handle four million returns the first full week of January, up 15% from two years ago as online sales continue to grow.
“Returns in the e-commerce segment are a more important issue than they are in the typical retail channel, representing a larger percentage of overall sales,” said Mike Glenn, president and CEO of FedEx Corporate Services, on a recent call with analysts.
FedEx Corp. said it doesn’t provide projections.
Returns may be a boon for delivery companies, but they are a costly for retailers. Best Buy Co. estimates that returns, replacements and damaged goods represent about 10% of revenue and for the year cost the electronics retailer $400 million. The chain is trying to reduce those losses by selling more so-called open-box inventory online and at its stores around the country. Hudson’s Bay Co. , which owns Saks Fifth Avenue and Lord & Taylor, has tried to encourage customers to return products to its stores, so it can try to land another sale in the process.
“Returns—it is just a dirty business,” said Frank Poore, chief executive of logistics platform CommerceHub, which connects manufacturers with major retailers to fill online orders.
Last January, some retailers were surprised by the high number of returns, said Bala Ganesh, retail-segment marketing director at UPS. Mr. Ganesh said some retailers had as many as 30 trailers full of returns sitting outside their distribution centers waiting to be processed.
Adding to the complication, retailers never know exactly what they have on their hands, he said. “It’s like Christmas every day, because they have no idea what’s in the box.”
Retailers differ on their methods for dealing with returned merchandise. Some have dedicated distribution centers to handle the flow, consisting mostly of online purchases. There, trained employees determine which goods can be recirculated and rehabilitate those items. As much as 70% of the returned merchandise can be suitable for resale, according to Steve Osburn, a supply-chain consultant with Kurt Salmon.
Other retailers liquidate entire trailers without checking their contents, auctioning the load off to bidders who in turn might sell items to pawn shops and flea markets. That often recoups only cents on the dollar, experts say. Seasonal goods, such as decorations or Christmas-tree ornaments, are nearly worthless after the holidays.
Liquidating merchandise, which has been the conventional method, is falling out of favor. “Retailers are really losing their shirts on it,” said Tobin Moore, Optoro’s CEO. “As the returns rate increases, more retailers are paying attention to it.”
Optoro has made a business out of online returns, serving as a platform on which retailers can resell returned items online.
Founded in 2008 as a drop-off store for items sold on eBay Inc., the company came up with a way for retailers to scan in a product, describe its condition and resell it in some cases for close to the full price online.
The delivery giants are trying to get in on the business too. FedEx said last week that it was acquiring Genco, a major player in the returns-logistics industry, which processes more than 600 million returns items each year. UPS is building out its return-services offerings for retailers, including such options as asking customers to specify their reason for returning an item so they can print out a label routing it to the appropriate destination. For example, a defective item might be sent to the manufacturer.
Returns policies are critical in driving purchase decisions. In a recent survey of 5,800 U.S. online shoppers, 82% said they were more likely to complete purchases if free returns via a prepaid shipping label or an in-store option were offered, according to comScore Inc., a data-tracking firm that conducted the study for UPS. About 66% of consumers now review a retailers’ return policy before making a purchase.
In addition, 62% of consumers said they had returned an item bought online in 2014, compared with 51% in 2012.
About 45% of retailers now offer free returns, according to an audit by consultant Kurt Salmon.
The return rate for online purchases is about three times as high as for items bought in stores, where shoppers can try on and test their choices. UPS’s Mr. Ganesh said that some high-end apparel retailers have return rates as high as 50%.
Alicia Carothers, a 29-year-old attorney in Panama City, Fla., said she tries to order clothes online only when she knows her size, but that doesn’t always work out. “Sometimes I get it in and it is too see-through or way too flowy,” she said. She said she returns online purchases frequently.
Owners at Country Club Prep, an apparel retailer with a primarily online business founded in 2012, said free returns are an important part of their retail strategy. In fact, the company’s customer-service reps encourage customers to order two sizes, and return one.
The holidays are the real crunchtime for returns, said co-founder Matt Watson. “If you don’t manage to sell them in season, they might not sell at all.”
Write to Laura Stevens at laura.stevens@wsj.com
Give cash, let the gift recipient decide the gift you gave them. Smile..
expand your concept of “giving” to something outside the mainstream, corporate-controlled economy. Once you put a big “X” through that as a possibility, other possibilities come into view.