Retail returns: a trillion dollar headache that technology and data analytics can solve

Ben Whitaker, Director EMEA at B-Stock

Ben Whitaker, Director EMEA at B-Stock
Ben Whitaker, Director EMEA at B-Stock
In an effort to drive customer loyalty, retailers are stepping up their game when it comes to the ease of returning items: special ‘returns’ entrances, pop up kiosks at the mall for items purchased online, year-long deadlines, third-party apps, and label-free returns are among the options. But a happy return for the customer is a logistical nightmare for the retailer, and one that’s costing trillions of dollars in efficiency: worldwide, the value of retail returns amounts to well over $2 trillion.
As these return options continue to drive a culture of risk-free impulse buying and over purchasing, retailers and manufacturers must adopt newer, more-efficient reverse logistics programs for how to deal with the merchandise once it’s returned to the kiosk/store/warehouse. There is a need for better technology and data-driven reverse logistics programs that promote efficiency, automate the process, and drive higher recovery. For example, there are SaaS inventory management solutions that – based on data – determine the best channel for an item (re-shelve, refurbish, liquidate, scrap). This automated process allows retailers to quickly process, reroute, and track merchandise, boosting efficiency.
Interestingly, more and more returned inventory – regardless of condition – is now being slated directly for liquidation. This is true for nine of the top 10 U.S. retailers and due primarily to 1) the cost associated with processing items back on shelf (consider this: it costs twice as much to process an online return it does to sell it) and 2) newer technology-based liquidation methods available that produce much higher recovery rates for the merchandise.
Consider this:
  • If you’ve historically sold your inventory to one or two liquidators, your recovery value is probably low. The liquidators know they are not being forced to compete for the inventory, and are really good at negotiating prices down in order to maximize their own profits.
  • Time spent negotiating deals for every lot of merchandise you have to sell (phone, fax, email), takes you away from core, strategic business activities.
  • A web-based solution makes it easier to have thousands of buyers compete for your inventory than it is to negotiate prices with a small number of buyers offline.
Let’s expand on that last bullet a bit. Over the past few years we’ve seen a shift in how organizations manage their returned and overstock inventory slated for the secondary market: many are bypassing layers of middlemen and incorporating technology into their liquidation programs and overall business strategy. This includes web-based solutions that allow thousands of buyers to compete for the inventory: a PaaS (platform-as-a-service) online B2B marketplace platform that can be customized, integrated and scaled based on unique needs is one example. An established B2B marketplace, that makes the merchandise available to thousands of buyers who will compete for it via online auctions, is another.
Applying this type of online marketplace platform not only delivers the highest price the buyer community is willing to pay, but it also automates the sale process, delivers a faster sales cycle and generates proprietary market intelligence in the form of real data on market prices.
Some of the world’s leading retailers and manufacturers are using this type of technology-driven approach to recover 30%+ more for their liquidation inventory. When you consider every increase in pricing achieved falls 100% to the bottom line, the impact on operating and net profit can be quite meaningful.
Keep in mind that having the technology is a first step, but really understanding how to use it will deliver optimal results. When it comes to leveraging an online auction platform to sell customer returns and excess inventory, knowing how to best assemble inventory as well as how to target, drive and sustain the right buyers will substantially increase recovery and efficiency. What the data shows us:
  • Segmenting buyers by product category, condition code, and lot size will match the right buyers with your inventory.
  • More bidder competition among the right buyers will mean higher prices every time so investing in attracting new buyers is critical.
  • Repeat buyers will pay significantly higher prices; rewarding customer loyalty and resolving disputes amicably will result in increased recovery.
  • How auction lots are assembled is extremely important to optimizing price, so consider segmenting by product type, condition and original MSRP per item.
Take this example: a global ecommerce company was selling all its returned, overstock, and other liquidation inventory to a single buyer at an extremely low pre-negotiated price. Over the years, the e-retailer became increasingly dependent on the buyer, who used that as leverage to dictate terms, conditions, and pricing. As pricing dropped to below 10% of retail in key categories it became clear the e-retailer needed a better solution for its excess goods.
The retailer launched a branded, private B2B liquidation marketplace, setting up a dynamic in which thousands of approved buyers could bid on the inventory via a web-based online auction platform. This immediately solved the problem of being dependent on a single buyer who was now forced to compete against other buyers and ultimately pay more.
Within a month of launching its B2B liquidation marketplace the e-retailer had hundreds of buyers competing for its inventory. By reducing the dependence on a single buyer prices in key categories doubled, earning 39% over target pricing, what’s more the automated auction platform eliminated hours of offline negotiation.
Let’s face it, returns are the rule in retail; in today’s competitive business climate, organizations can’t afford to utilize old-school, manual methods for the inventory. It’s time retailers invest in technology-based programs for reverse logistics. For some, it could mean the difference between winning and losing.