Retail Returns: A $440B Headache that Technology and Data Analytics Can Solve
By Eric Moriarty, Vice President at B-Stock Solutions
By the end of 2017 the value of retail returns will be equivalent to total online sales: around $440 billion. These skyrocketing return rates are due primarily to the growth of ecommerce and buyer expectations of no-hassle, cross-channel return policies. What’s more, the majority of the merchandise doesn’t go back on store or virtual shelves and ends up sitting in a warehouse, taking up space, costing money and depreciating in value until someone decides to do something about it. Typically this would involve selling truckloads of it to a single liquidator at a rock-bottom price. This is a major problem for companies, many of which are fighting for survival in an increasingly competitive and volatile retail environment.
Outdated, manual, and reactive processes to handle the reverse flow of inventory – also called reverse logistics – are unsustainable. There is a need for better technology and data-driven reverse logistics programs that promote efficiency, automate the process, and drive higher recovery. This is especially true when it comes to the remarketing of merchandise bound for the secondary market.
Ditching manual methods and automating the process can bring efficiency and create a strategic business advantage. 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.
Technology is the Answer
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 SaaS 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.
"There is a need for better technology and data-driven reverse logistics programs that promote efficiency, automate the process, and drive higher recovery"
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 largest retailers and manufacturers (including nine of the top 10 U.S. retailers) are using this type of technology-driven approach to recover 30 percent+ more for their liquidation inventory. When you consider every increase in pricing achieved falls 100 percent to the bottom line, the impact on operating and net profit can be quite meaningful.
Data is the Key to Success
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.
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.