Over the past few weeks, some of the largest chain stores, including Target, Walmart, Gap, American Eagle Outfitters, and others, have reported in their recent earnings calls that they are overstocking merchandise ranging from workout clothes to spring jackets, hoodies, outdoor furniture, and bulky children’s toy. It costs them tons of money to store it.
Now, add to that deluge another product category for stores to deal with: returns.
Instead of piling returned goods on top of this growing inventory, stores are considering simply giving customers their money back and letting them hold on to the things they don’t want.
“That would be a smart strategic initiative,” said Burt Flickinger, retail expert and managing director of retail consultancy Strategic Resource Group. “Retailers are facing overstock levels at unprecedented levels. They cannot afford to take any more of it back.”
Returned products are handled in a variety of ways, he said. Retailers take goods back from customers, evaluate them and, if they are in good condition, put them back on the shelf at the same or a lower price.
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You can refurbish damaged returns and sell them for less money or outsource them to insolvency practitioners for resale. You can also sell returned products to foreign insolvency practitioners for sale in Europe, Canada or Mexico.
“Given the situation in the ports and the shortage of containers, shipping overseas is not really an option,” said Flickinger. Finally, retailers can hire third-party companies to handle all aspects of returns for them.
However, each of these options comes with additional costs for retailers, he said.
“For every dollar in sales, a retailer’s net profit is between one cent and five cents. For returns, it costs a retailer between 15 cents and 30 cents for every dollar of returned merchandise to handle,” Flickinger said.
There’s another way for retailers to address returns while avoiding more product bloat, and that’s with “returnless returns,” said Steve Rop, chief operating officer at goTRG, a company that handles over 100 million returned items annually for companies like Wal – Mart, Amazon and Lowes.
keep it simple
Rop said his company’s customers are 100% considering offering the “Keep it” option for returns this year, although he wouldn’t disclose whether any of his customers have already implemented the “Keep it” returns policy.
In some cases, when they find it would be easier, some retailers advise customers to simply keep or donate their return after issuing a refund. Walmart said it had nothing to share at this time. Lowe’s has not commented on the story.
“They are already saving in stores to phase out products, but when there are heavy discounts, shoppers’ regret increases. People are tempted to buy a lot only to give back later,” he said.
Refunding customers while allowing them to keep their returns is not a new practice, Rop said. “It started with Amazon a few years ago,” he said.
The offer makes sense for some types of products – bulky, lower-priced items such as furniture, kitchen appliances, home accessories, high chairs, baby walkers, strollers, where it is expensive for the retailer to pay the return shipping costs.
“Other products such as children’s toys, shoes, towels and bed linen raise hygiene concerns when it comes to returns. This could also apply to these categories,” he said.
Another problem with cheaper items: Stores typically discount returned products, so the amount of money they can make from a low-cost return is tiny — and may not be worth the trade-off, says Keith Daniels, a partner at Carl Marks Advisors .
However, a “keep it” policy has its own disadvantages, namely: Businesses need to ensure they are not victims of fraud.
“One thing that retailers need to follow up and make sure is that customers who become aware of the (Keep it) policy don’t start abusing it by looking for free goods on a series of orders by placing a Received a refund but can keep the goods,” said Daniels.
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