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
(TGT), Walmart, (WMT) Gap (GPS), American Eagle Outfitters (AEO), 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, a 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 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, and 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 minuscule — 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.