Long Tail of Consumer Product Returns-Upward 30% of Sales: Secondary Markets Valued at Over $400 Billion…

The value of consumer product returns– goods that consumers decide they don’t really want and return would rank as the world’s 21st largest economy, based on the World Bank’s global economies ranking… Put another way, it equals the combined sales of; Wal-Mart, Target, Best Buy, Gap, Macy’s… Blame it on– shoddy merchandise, wrong color, wrong size, buyers’ remorse, defective or poor-quality, lower price elsewhere… Consumers use many reasons when returning goods…

According to estimates; the consumer’s product returns market is staggering $642.6 billion, globally… According to IHL Group; returns account for an estimated 4.4% in retail sales… others estimate returns upward of 8%, and still others estimate returns of eCommerce sales upward of 30%. In product categories; clothing retailers see average of 10% of sales returned, which is highest among retail segments… And electronics, books, and other hard-goods follow with an average of 8.8% returns…

Clearly consumer product returns is a big issue for retailers, and it’s also a catch-22: On one hand, a liberal returns policy is seen as necessity for customer loyalty and cross-sell to other purchases… But on the other hand, retailers lose money on returns… According to Gartner survey of 300 retailers; only 48% of what’s returned can be resold at full price…

But at the same time there are enterprising entrepreneurs who are developing a whole new market/industry where they buy returned goods (at pennies on the dollar) and re-sell them at deep discounted price and still make a very good profit… This secondary returned goods market is estimated at over $400-billions…

National Retail Federation’s (NRF) Annual U.S. Merchandise Returns and Return Fraud Study has the following key findings:

  • Total size of returned products is overwhelming; if merchandise returns were a corporation it would rank #3 on the Fortune 500 list…
  • Holiday product returns rate is 2.0% higher than the annual rate: One out of every three gift recipients (38.0%) returned at least one item during holiday season…
  • Rarely or never do people include a gift receipt or original receipt when giving a gift, 31.9%… leading to increased potential for non-receipted returns…

In the article e-Commerce Product Return Statistics and Trends by Stacey Rudolph writes: Online retailing is souring and the rate of goods returns of online is alarming… According to Invesp; at least 30% of all products ordered online are returned, compared to only 8.89% bought in brick-and-mortar shops. To make matters worse, United Parcel Service Inc. announced that the tide of goods flowing back to e-retailers normally jumps 15% during holiday seasons…

According to whiteboardmag, some retailers experience as much as 50% return rates, whereas, most online retailers report a return rate of between 20% and 40%... Consumer reasons for returns vary wildly; According to TrueShip; 20% of consumers returned items because they received damaged products; 22% said they received different products from what they ordered; 23% said they received wrong item altogether; 35% of consumers return products for other or no reasons…

In the article Get Smart About Product Returns by J. Andrew Petersen and V. Kumar write: To many retailers product returns are a bitter pill to swallow… They are an enormous drain on revenue, plus the cash refunds to customers, plus the cost of repackaging, restocking, reselling returned items… But discouraging product returns with policies like; no refunds, or strict limits, or partial refunds… is a mistake.

That’s because consumers who know they can return anything they buy with no questions asked for a full refund are likely to buy more than consumers who are unable to return goods… and who are afraid they might get stuck with something they don’t want, or lose money on less liberal returns policy… In the end retailers that have a liberal return policy come out ahead…

However, having a liberal return policy isn’t the whole answer: Retailers must actively manage product returns so they become tool to maximize profit. That means encouraging fewer returns by some customers, and ironically more returns by other customers… For example; it was found that returns tended to be lower when shoppers buy items that are discounted…

Also, returns are lower when customers buy the same products that they usually do, but from a different sales channels, such as; ‘online’, instead of ‘in-store’. Hence lessons learned is simple: 1.) retailers must understand and influence the behavior of their consumers, 2.) retailers must manage their consumer product returns...

 In the article Managing Retail Returns: Good, Bad, Ugly by Lisa Terry writes: Retailers cope with all kinds of product returns; from apparel that didn’t suit the customer, to expired products that are no longer salable, to products recalls that endanger public safety… Hence, in the ‘forward-side’ of retail logistics, retailers spend the holiday months of; September through December moving volumes of goods in-stores and e-Commerce distribution centers…

Then in post holiday months of; January, February, March it’s all about ‘reverse-side’ of retail logistics… That’s when; the good, bad, and ugly post-holiday product returns hit; these are the damaged, unwanted, outmoded, leaking, spoiled, or counterfeit merchandise… that pour back into retail stores and returns consolidation centers, accounting for upward of 40 to 60% of the year’s returns.

Then it’s up to retailer’s reverse-side logistics to separate the wheat from chafe, performing triage and processing it all to reduce costs and mitigate loss. Retailers are devoting more attention and resources to reverse-side logistics seeking to extract as much value as possible from returned goods. The average retailer’s reverse-side logistics costs, is typically equal to an average of 8.1% of total sales– a figure which, unlike forward-side logistics, includes the value of the products…

However over past few years, most retailers have come to realize that creating liberal product returns experience is big competitive advantage… Ongoing studies suggest that over 80% of consumers view stores that offer lenient returns policies more favorable, and over 60% of consumers do take the time to read a returns policy before they make a purchase… Consumers repeatedly made it known that they want an easy, automated way to return products…

Consumers are going to spend an estimated $350 billion on holiday goods this season, a sharp increase from last year, but returns are also expected to peak at about 30-33%. Hence for every dollar spent, retailers could see about one-third coming back-in-the-door in form of returns, processing, shipping, labor… 

Hence retailers (both online and in-store) must focus on developing strategy and managing their operations so as to reap the most value from product returns. And that means engaging a secondary market, which includes; liquidators, outlets, salvage centers, auctions…

The consumer product returns market has blossomed into a $400-billion industry… And when retailers manage and embrace it they can recoup upward of 12 to 25% of a returned item’s original cost, versus less than 2% from recycling the item…