Over the past few weeks, some of the biggest chain stores including Target, Walmart, Gap, American Eagle Outfitters and others have reported in their latest earnings calls that they have too much inventory of things ranging from clothing to training, from spring jackets and hoodies to garden furniture and bulky children’s toys. It costs them tons of money to store it.
Now add to this glut another category of products that stores have to manage: returns.
So instead of piling returned goods onto this growing pile of inventory, stores are simply considering giving customers their money back and letting them hang on to what they don’t want.
“It would be a smart strategic move,” said Burt Flickinger, retail expert and managing director of retail consultancy Strategic Resource Group. “Retailers are stuck with excess inventory at an all-time high. They can’t afford to take back any more.”
Returned products are handled in different ways, he said. Retailers take back the customer’s merchandise, appraise it, and if it’s in good condition, re-shelve it at the same or lower price.
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They can refurbish damaged returns and sell them for less or take them to liquidators to resell. They can also sell the returned products to foreign liquidators for sale in Europe, Canada or Mexico.
“Given the situation at ports and container shortages, sending products overseas is not really an option,” Flickinger said. Finally, retailers can hire third-party companies to handle all aspects of merchandise returns for them.
Each of these options, however, carries additional costs for retailers, he said.
“For every dollar in sales, a retailer’s net profit is between one cent and five cents. With returns, for every dollar of returned merchandise, it costs the retailer between 15 and 30 cents to manage,” said said Flickinger.
There’s another option for retailers to handle returns while avoiding more product bloat and that’s to consider a “returnless return,” said Steve Rop, chief operating officer at goTRG, a company that processes more than 100 million returned items per year for companies like Wal-Mart, Amazon and Lowe’s.
Rop said his company’s customers are 100% considering offering the “Keep It” option for returns this year, though he wouldn’t disclose if any of his customers have implemented the option yet. “Keep it” return policy.
In some cases, when they determine it would be easier, some retailers advise customers to simply keep or give away their return after issuing a refund. Walmart said it had nothing to share at this time. Lowe’s did not provide commentary for the story.
“They already discount in stores to eliminate products, but when there are big discounts, buyer’s remorse increases. People are tempted to buy a lot only to return it later,” a- he declared.
Reimbursing customers while allowing them to keep their returns is not a new practice, Rop said. “It started with Amazon several years ago,” he said.
The offer makes sense for certain types of products – low cost bulky items like furniture, kitchen appliances, home decor, baby chairs, walkers, strollers where it is expensive for the retailer to cover the cost shipping for the return.
“Other products like children’s toys, shoes, towels and bedding raise health concerns with regards to returns. This could also apply to these categories,” he said.
Another concern with cheaper items: Stores typically offer discounts on returned goods, so the amount of money they can earn on an inexpensive return is minimal — and may not be worth the trade-off, says Keith Daniels, partner of Carl Marks Advisors.
Yet a “keep it” policy has its own drawbacks, namely: Companies will need to ensure that they do not become victims of fraud.
“One thing retailers need to monitor and ensure is that customers who become aware of the (Keep it) policy don’t start abusing it, seeking free merchandise on a series of orders getting a refund but keeping merchandise,” Daniels says.
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