From Returns to Rewards – Turning eCommerce Returns into a Profit Driver

Can All Types Of Products Be Returned?
January 21, 2020

The elephant in the room needs to be tackled and it needs to be tackled now! 

Yes, we are talking about returns. Returns and the pain points they bring with them. Returns are inevitable.  

Look at these numbers:[1]

  • 62% “would buy again” from a brand offering free returns or exchanges (Dotcom Distribution, 2018)
  • 69% are deterred from buying online by having to pay for return shipping and 67% by restocking fees (Narvar, 2018)
  • 90% “highly value” free returns (Dotcom Distribution, 2018)
  • 96% would shop with a retailer again based on an “easy” or “very easy” return experience (Narvar, 2018)

 

So, it’s quite clear that there’s no backing out of this one. And then, there is the next obvious – returns do everything to erode margins and threaten profitability. Check this example:

Did you know that 30% online sales are returned and that the average profit for the online sale is around $10? By that account, if a $50 dollar item is returned:[2]

  • $ 50 shoes returned
  • 10 percent margin – $5
  • Return costs – $15
  • Net loss – $10

You’d need to sell at least 3 pairs of shoes to recover the cost of one return.

Time to deal with problem – head on. 

First things first. Invest in the right partner to handle your reverse logistics concerns. More so if it involves cross border commerce, for e.g. If you are shipping out of India to the US. 

The right partner will help you change the way you look at returns. Don’t look at it only from the lens of a cost, look at it with another lens. One that spells opportunity. It is difficult and involves hard work but it’s doable – you can turn returns into a profit center. At ReturnsUSA, we can help you do just that. 

Here are some pointers for you to ponder:

Returns and Reselling

The path back to the retailer is a long and costly one – first, there are shipping and handling costs, labour cost, cost of delivery and the price of moving it back into inventory. While these costs may vary with the type of product, size, shipping origin and destination, there’s no doubt that it will eat into your profit margin. Moreover, the condition of the product and the time it takes to bring a returned product back into circulation can set you back in different ways. 

There is a silver lining though!

In order to offset these costs, many retailers turn to resellers. For e.g., the company B-Stock works with the top 10 U.S retailers and is on track to sell over 70 million returned items this year. B-Stock acts as a Business-to-Business marketplace for returns or excess inventory. 

Retailers are offsetting everything, from clothes, to toys and appliances at the lowered rate – around 15 to 30 cents on each dollar to these secondary markets [3]. These numbers aren’t fixed though. How much the retailer makes through secondary channels like these can vary widely. A restocked item on the store’s shelf might sell at a 30% discount, however if the product is damaged then the markdown can drop even further. 

The same solutions are employed in India as well. Amazon reports that it sees the most product returns in India, as compared to any other market in the world [4]. However, the problem in India has also spawned the solution. Many e-commerce sites have started to sell refurbished items. Online retailers like Flipkart have launched secondary marketplaces, (named 2Gud) to sell used or refurbished items.

The bottom line is, reselling products can produce a profit on what is essentially viewed as a big loss in this business. While many retailers throw their returned merchandise away (Optoro estimates that nearly 5 billion pounds of returned items are thrown into a landfill [5]) the increased volume of returns has also guaranteed a boom in the inventory liquidation business. Afterall, it’s better to make a reduced profit on a return, than no profit at all. 

Retrieving versus Reselling

As we’ve mentioned many times, returns do cut into your profits. However, there is an entire industry of dealers who buy discarded items at very low prices and resell them on major e-commerce sites. 

Online marketplaces, worth multi-million dollars, allow customers to buy these returned products online. These platforms offer retailers the option to rid themselves of large volumes of inventory, through warehouse liquidation. The merchandise is bundled under categories and sold in large volumes for discounted rates. Customers can then resell these returned products on large platforms like eBay and Amazon for a profit – making it a far simpler option to resell the option instead of retrieving it.

Restocking

If your customer does send an item that is unopened or undamaged (and is not obsolete), then you can put it straight back into inventory. Many retailers charge a 10-20% mandatory restocking fee to balance the loss of profit that comes with a product return. 

Returning to the Supplier

For damaged products, many retailers return the products to the supplier. This however is a variable process, as each supplier has different terms and conditions to determine cost savings associated with returning the product to them. 

Scrapping the product

This may be the last – and most dramatic – of options, but if there is no financial gain in retrieving the product or if it is damaged then scrapping it may be the most prudent choice. 

Returned items don’t have to be the black hole of your business. There are strategies (as we’ve mentioned above) to not only help you cut your losses, but maybe make a profit from them. If you’re looking for liquidation strategies like these, reach out to ReturnsUSA. Let’s see how we can make this a story from returns to riches.   

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