Returns and the logistics associated with them have always been an issue for retailers: What is a store to do with a swimsuit that a customer returns in late August, after summer is virtually over? How can they handle opened boxes and disrupted packaging if they hope to sell the returned product as new? Such questions have become ever more pressing and prominent as modern consumers grow more accustomed to the idea that they can purchase virtually anything they want online and return it conveniently through easily accessible shipping channels.

For many retailers, the primary solution to the piles of returned merchandise is to get rid of the items as quickly and cheaply as possible. Rather than invest additional time and resources in repackaging electronic items or returning out-of-season clothing to hangers, many retailers either toss the returned items into the trash or seek to sell them to bulk buyers.

In this reverse logistics system, the bulk buyers include wholesalers, liquidators, and resellers. In some cases, dedicated agents hold auctions for pallet loads of returned products. The prices for the items run from about 10–40 cents on the dollar, such that the profits of these resellers depend on their ability to move large volumes. If they can purchase more returned items that they then can sell at a slight markup in wholesale or resale channels, often in the form of flea markets or dollar stores, then they can make a profit. The margins remain slim though.

To help retailers decide whether entering the auction market is even worthwhile, new software introduced by a company called Optoro promises to assess each return for its viability. Rather like a consumer going through a closet of clothing, it divides the returns in “piles”: repackage for retail sale, toss in the trash, or send to the auction for wholesale.

Discussion Questions:

1.  What is reverse logistics?
2. Why is it so expensive for retailers?
3. Why don’t a lot of returns go back into stock?
4. What do retailers do with the majority of returned items?

Source: Tom Ryan, Retail Wire, January 4, 2016