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The Tenuous Supply Chain of Your Returned Gifts

Posted by Janie Ryan | December 20, 2017

Retailers are in the midst of the country’s most frenzied shopping season. The holidays never fail to draw out shoppers in droves, and this trend — rivaling in popularity humble holiday traditions like cozying up with hot chocolate — shows no sign of slowing down. The National Retail Federation reports that this year more than 174 million Americans shopped from Thanksgiving through Cyber Monday (a mere five day window), exceeding their projection of 164 million. This translates to a 16% rise in holiday spending from last year.

Such bustling activity would suggest that Americans are hungrier than ever for material goods. And while companies do need to strive to make sure they are keeping up with demand, their work doesn't end there. Retailers need to prepare not only to ensure that their shelves are stocked but also to process an inundation of returns as soon as the holidays end. Along with more purchases this season, consumer reports predict more returns — and most retailers' disorganized strategy for dealing with them will both sacrifice profit and send thousands of packaged, unused items to landfills.

 

“National Returns Day”

Americans send back more than $260B in goods each year according to data provided by Optoro, a logistics company helping retailers handle the reverse supply chain of returned goods. $69B of this, or over 20% of the total, occurs just after the holidays. Last year UPS alone predicted that it would ship 5 million packages back to retailers in the first week of January. And that’s not to mention returns through FedEx or USPS. Some industry leaders are even dubbing January 6 “National Returns Day” as it’s the day that seems to see the highest volume of returned packages.


What accounts for all the returned products?

A combination of remorse-tinged impulse buys and dud gifts makes up the majority of holiday returns. Avid holiday shoppers — often with the best of intentions — don’t always know how to turn their cash into gifts that will truly delight. Clothing is notoriously among the worst gift choices, as any number of things — fit, color, material, brand — can easily miss the mark and send the receiver racing to the returns queue. Other poor choices include kitschy home decor items with little meaning attached to them (popular among those shopping for people they don’t know well). Most people receiving impersonal gifts would prefer to get simple items they can use every day. Gift cards may seem like a practical solution, but it’s important to know where your receiver shops if you don’t want your purchase to go unused. It’s not just acquaintances-of-acquaintances who are guilty of making misguided choices during the holidays. In a survey conducted by The Daily Mail, 42% of women reported having returned gifts from their husbands.

 

Discounts and the ease of digital shopping: why consumers buy what they don’t really want

Sales and other promotions encourage purchases that may be regretted once the euphoria of paying less for more has worn off. Discounts offered by major companies came earlier and went deeper this year than in previous years, starting even before Black Friday and ranging between 50% and 57% off popular items from entertainment to apparel. People took notice: some 60% of holiday shoppers say a majority of their weekend purchases were driven by sales. With enticing store promotions lasting longer than they once did, retailers have consumers enthralled — and primed to make regrettable purchases — for longer as well.

The increasing prevalence of online shopping also encourages consumers to shop with impunity. Free return shipping offered by most companies means consumers can make low-stakes purchasing decisions from the comfort of home. According to Adobe, last year’s Black Friday online sales grew by more than 20% to $3.3B, with Cyber Monday sales reaching $3.4B. And the return rate for online purchases is about three times that of items bought in stores.

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The consequences: lost profits and growing landfills

Though the process of returning items has become streamlined from the consumer’s perspective, for retailers the growing amount of returns is cause for concern. When products are returned retailers achieve just 12-25% of what they would have originally earned. Unwanted items don’t come back to the seller through the same supply chain that brought them to the consumer. Instead, a separate — and inefficient — industry of reverse logistics exists solely for this purpose. Due to the high cost of processing returned goods through the systems most businesses currently have in place, most of them don’t end up back on shelves for purchase. The majority are sent to landfills or liquidated — sold at a discount to third party sellers.  While resale outlets have become successful businesses in themselves, the environmental impact of so many discarded goods costs everyone.

In reality, as much as 70% of returned merchandise can be suitable for resale if companies have the right infrastructure in place. It’s vital to have well-staffed distribution centers where trained employees determine which goods can be recirculated and rehabilitate those items. According to the Harvard Business Review, “companies that have been most successful with their reverse supply chains are those that closely coordinate them with their forward supply chains [...]. For example, they make product design and manufacturing decisions with eventual recycling and reconditioning in mind.”


Conclusion

The holidays are a heady combination of all the things shoppers crave — big discounts, the ease offered by online retail, and no-strings-attached purchasing. It can feel like a blessing to take home the latest Apple product at a steal, or to be able to gift a family member the electric mixer they’ve been wanting without breaking the bank. But the billions of dollars worth of goods being returned each holiday season suggest that neither consumers nor retailers are always getting what they want. Rather than sticking a return label on an unwanted item and sending it to an uncertain destination (which could likely be a landfill), consumers can avert unnecessary waste by being mindful of their purchases. Retailers can minimize waste and earn back a profit on returned goods by tightening their reverse logistics.

When it comes to gift-giving it’s the thought that counts. Some careful thought about this year’s purchases — and the supply chains they run through — can help more products reach their best possible destination.