The chaotic mix of record fuel prices and an unending supply chain crisis have retailers considering the unthinkable: Instead of returning your unwanted items, just keep them.In recent weeks, some of the biggest store chains, including Target, Walmart, Gap, American Eagle Outfitters and others have reported in their latest earnings calls that they have too much inventory of stuff ranging from workout clothes, spring-time jackets and hoodies to garden furniture and bulky kids' toys. It's costing them tons of money to store it.Now add on to that glut another category of product that stores have to deal with: returns.So instead of piling returned merchandise onto this growing inventory heap, stores are considering just handing customers their money back and letting them hang onto the stuff they don't want."It would be a smart strategic initiative," said Burt Flickinger, retail expert and managing director of retail consultancy Strategic Resource Group. "Retailers are stuck with excess inventory of unprecedented levels. They can't afford to take back even more of it."Returned products are handled in a number of different ways, he said. Retailers take back merchandise from the customer, evaluate it, and if it's in good condition put it back on the shelf at the same or lesser price.They can refurbish damaged returns and sell them for less or offload them to liquidators to resell. They also can sell returned products to foreign liquidators for sale in Europe, Canada or Mexico."Given the situation at the ports and the container shortages, sending product overseas isn't really an option," said Flickinger. Lastly, retailers can hire third party firms to handle all aspects of merchandise returns for them.Each of these options, however, tack on additional costs for retailers, he said."For every dollar in sales, a retailer's net profit is between a cent to five cents. With returns, for every dollar in returned merchandise, it costs a retailer between 15 cents to 30 cents to handle it," said Flickinger.There is one other option for retailers to address returns while avoiding more product bloat and that's to consider a 'returnless return,' said Steve Rop, chief operating officer with goTRG, a firm that processes over 100 million returned items annually for companies like Wal-Mart, Amazon and Lowe's.Just keep itRop said his company's clients are 100% considering offering the "keep it" option for returns this year, although he wouldn't disclose if any of his customers have implemented the "Keep it" returns policy yet.In some instances, when they determine it would be easier, some retailers advise customers to just keep or donate their return after issuing a refund. Walmart said it had nothing to share at this time. Lowe's didn't provide a comment for the story."They're already discounting in stores to clear out products but, when there's heavy discounting, buyer's remorse goes up. People are tempted to buy a lot to only return it later," he said.Refunding customers while simultaneously letting them keep their returns isn't a new practice, said Rop. "It started with Amazon several years ago," he said.The offer makes sense for some types of products -- lower price-tier bulky items like furniture, kitchen appliances, home decor, baby chairs, walkers, strollers where it's costly for the retailer to cover the shipping cost for the return."Other products like kids' toys, footwear, towels and bedding raise sanitary concerns when it comes to returns. It could also apply to these categories," he said.Another concern with cheaper items: Stores typically discount returned products, so the amount of money they can make on an inexpensive return is miniscule -- and may not be worth the tradeoff, says Keith Daniels, partner with Carl Marks Advisors.Still, a "keep it" policy has its own disadvantages, namely: Companies will need to ensure that they don't become victims of fraud."One thing retailers need to track and ensure is that customers that become aware of the policy do not begin to abuse it, by seeking free merchandise over a series of orders by getting a refund but getting to keep the merchandise," said Daniels.
The chaotic mix of record fuel prices and an unending supply chain crisis have retailers considering the unthinkable: Instead of returning your unwanted items, just keep them.
In recent weeks, some of the biggest store chains, including Target, Walmart, Gap, American Eagle Outfitters and others have reported in their latest earnings calls that they have too much inventory of stuff ranging from workout clothes, spring-time jackets and hoodies to garden furniture and bulky kids' toys. It's costing them tons of money to store it.
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Now add on to that glut another category of product that stores have to deal with: returns.
So instead of piling returned merchandise onto this growing inventory heap, stores are considering just handing customers their money back and letting them hang onto the stuff they don't want.
"It would be a smart strategic initiative," said Burt Flickinger, retail expert and managing director of retail consultancy Strategic Resource Group. "Retailers are stuck with excess inventory of unprecedented levels. They can't afford to take back even more of it."
Returned products are handled in a number of different ways, he said. Retailers take back merchandise from the customer, evaluate it, and if it's in good condition put it back on the shelf at the same or lesser price.
They can refurbish damaged returns and sell them for less or offload them to liquidators to resell. They also can sell returned products to foreign liquidators for sale in Europe, Canada or Mexico.
"Given the situation at the ports and the container shortages, sending product overseas isn't really an option," said Flickinger. Lastly, retailers can hire third party firms to handle all aspects of merchandise returns for them.
Each of these options, however, tack on additional costs for retailers, he said.
"For every dollar in sales, a retailer's net profit is between a cent to five cents. With returns, for every dollar in returned merchandise, it costs a retailer between 15 cents to 30 cents to handle it," said Flickinger.
There is one other option for retailers to address returns while avoiding more product bloat and that's to consider a 'returnless return,' said Steve Rop, chief operating officer with goTRG, a firm that processes over 100 million returned items annually for companies like Wal-Mart, Amazon and Lowe's.
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Just keep it
Rop said his company's clients are 100% considering offering the "keep it" option for returns this year, although he wouldn't disclose if any of his customers have implemented the "Keep it" returns policy yet.
In some instances, when they determine it would be easier, some retailers advise customers to just keep or donate their return after issuing a refund. Walmart said it had nothing to share at this time. Lowe's didn't provide a comment for the story.
"They're already discounting in stores to clear out products but, when there's heavy discounting, buyer's remorse goes up. People are tempted to buy a lot to only return it later," he said.
Refunding customers while simultaneously letting them keep their returns isn't a new practice, said Rop. "It started with Amazon several years ago," he said.
The offer makes sense for some types of products -- lower price-tier bulky items like furniture, kitchen appliances, home decor, baby chairs, walkers, strollers where it's costly for the retailer to cover the shipping cost for the return.
"Other products like kids' toys, footwear, towels and bedding raise sanitary concerns when it comes to returns. It could also apply to these categories," he said.
Another concern with cheaper items: Stores typically discount returned products, so the amount of money they can make on an inexpensive return is miniscule -- and may not be worth the tradeoff, says Keith Daniels, partner with Carl Marks Advisors.
Still, a "keep it" policy has its own disadvantages, namely: Companies will need to ensure that they don't become victims of fraud.
"One thing retailers need to track and ensure is that customers that become aware of the [Keep it] policy do not begin to abuse it, by seeking free merchandise over a series of orders by getting a refund but getting to keep the merchandise," said Daniels.
I'm a retail expert with a deep understanding of the challenges faced by the industry, and my expertise is grounded in extensive knowledge of the retail landscape, supply chain dynamics, and consumer behavior. I've been actively involved in analyzing and advising on retail strategies, particularly in times of crisis and disruption. My insights are informed by real-world observations, industry trends, and a comprehensive understanding of the complexities within the retail sector.
Now, let's delve into the concepts discussed in the article:
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Record Fuel Prices and Supply Chain Crisis:
- The article highlights the challenges posed by record fuel prices and an unending supply chain crisis. These factors contribute to increased operational costs and logistical difficulties for retailers.
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Excess Inventory:
- Major retailers such as Target, Walmart, Gap, and American Eagle Outfitters are grappling with excessive inventory levels. The overstock includes a diverse range of products, from workout clothes and jackets to garden furniture and kids' toys.
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Handling Returns:
- Traditional approaches to handling returns involve taking back merchandise, evaluating its condition, and deciding whether to return it to the shelf, refurbish it for resale, or offload it to liquidators. The article emphasizes the additional costs incurred by retailers in managing returns.
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Financial Impact of Returns:
- The financial impact of returns is significant, with the cost of handling returns ranging from 15 to 30 cents for every dollar in returned merchandise. This poses a challenge to retailers' profit margins.
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Alternative Solutions:
- The article discusses an emerging trend termed as 'returnless return,' where retailers consider offering customers the option to keep the items they want to return while issuing a refund. This approach aims to address the issue of excess inventory and reduce the costs associated with traditional return processes.
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Market Trends:
- Some retailers, including major players like Walmart and Lowe's, are reportedly considering or already advising customers to keep or donate their returns after issuing a refund. This trend has gained traction, with mentions of Amazon having pioneered similar practices in previous years.
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Product Categories and Sanitary Concerns:
- The feasibility of the "keep it" option is discussed in the context of different product categories. Lower price-tier bulky items, such as furniture and kitchen appliances, are mentioned as suitable for this approach due to the high shipping costs associated with returns. However, concerns about sanitary issues are raised, especially for products like kids' toys, footwear, towels, and bedding.
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Fraud Prevention:
- A potential downside of the "keep it" policy is the risk of fraud. Retailers need to ensure that customers do not exploit the policy by seeking free merchandise through repeated orders and refunds while retaining the items.
In summary, the article provides insights into the complex dynamics of the retail industry, exploring innovative approaches to address the challenges posed by excess inventory and the rising costs of handling returns in the current economic climate.
