Online sales have come of age. We all know this. Check out the chart at the bottom. Sales have grown explosively. According the MasterCard Advisors it is expected that online sales grew by 20% in 2015. Logistics companies like FedEx and UPS have been running like crazy trying to get everything delivered on time. Not only do we buy the day after Thanksgiving but we buy just one or two days before Christmas fully expecting that everything will be delivered on time and in perfect condition.
But there is another side to all of our Consumption Gorging. A lot of e-commerce doesn’t end up where it was supposed to be. It gets returned. The International New York Times (December 30 edition) recently estimated that $260 billion of e-commerce merchandise last year got returned. That is at least 15% of total sales. In the electronics business it is conventional wisdom that if a new device takes more than 15 minutes for a user to figure out (and of course no self respecting buyer would consult the instructions), that item is highly likely to be returned.
So what happens to all these things sent back? You would think that they would simply get put back on the shelves and resold. Think again. Much of what gets returned simply ends up in landfills. What is resold does not get done at anywhere near original margins. It is estimated that traditional retailers recover only 20% – 40% of the retail cost of a returned item. A whole new industry, reverse logistics, is developing to deal with this problem. You don’t hear a lot about this but it is becoming big business. Traditional logistics companies like FedEx are getting into the act, buying companies that take care of returns.
Why can’t retailers realize more from returns than they do? Well a lot of merchandise which was hot in the Holiday season is definitely not hot in the New Year. Also, many retailers have very long dated return policies, as long as 45 to 90 days. Merchandise can get pretty stale after being off the shelf for this long. So reverse logistic companies have set up websites to off- load valuable and not so valuable returns. They pitch retailers that they can get the recovery rate up from 20% – 40% to 50% – 70%. So check out the Dollar Stores and other off-price merchants. You might just find that cringe-worthy present from grandma that you returned last month.