What happens to returned holiday gifts?
Many of us receive holiday gifts that we don’t want or need. We return them regularly, but where do they go? A New Class of Business Offers Solutions That Are Both Profitable and Sustainable
Last year, 10.6% of Christmas presents (worth about $ 428 billion) were returned, according to McKinsey. Two in three customers will return at least one gift during the 2021 holiday season, according to Optoro, a US-based logistics company specializing in merchandise returns.
What happens to this returned merchandise?
Many retailers discard, incinerate, or give away these returns, given the high costs of customer service, transportation, product quality assurance, storage and restocking. Right next to the site that hosted the COP26 climate conference in Glasgow, Scotland, a covert investigation of an Amazon UK fulfillment center found that most returns and unsold items had been destroyed .
Return costs, which require reverse logistics, have increased dramatically now that supply chains are locked down. Optoro estimated that retailers pay 66%, or $ 33 of a $ 50 product, for returned products. At this price, it is clearly cheaper for retailers to dispose of and donate goods than to restock and resell those goods.
Closing the loop with secondary markets
Some companies see this waste at the âend of the supply chainâ as an opportunity.
I recently spoke to Howard Rosenberg, Founder and CEO of B-Stock, who captures the value still left in this feedback. B-Stock’s web-based platform allows customers, such as auction houses, recyclers and direct-to-consumer resellers, to bid on returned products.
B-Stock creates value by quickly moving excess inventory out of the warehouse at a good price. They do this through powerful data analytics, which draws on years of historical auction data and consumer behavior know-how. This data is used to decide how to pack returned and unsold items in pallet-sized packages. B-Stocks knows, for example, that customers who want lawn mowers are unlikely to buy rugs.
Rosenberg argues that the key to creating value from returns is ensuring that inventory keeps moving and is not in warehouses. In Rosenberg’s words: âThe main rule of the game: don’t stop the train.
Optoro also creates value at the end of the supply chain by offering a web platform. Co-founders Tobin Moore and Adam Vitarello started their business in a garage, where they sold unique items on eBay for a small profit. Soon, large retailers were coming to them with their returned or surplus items. Today Optoro is a global business with clients like Ikea, Best Buy, and Target.
Towards a circular economy
The circular economy allows physical products to be stored for longer, which stimulates the creation of economic value and slows down climate change and biodiversity loss. When the products are no longer needed, people find new uses for the product or turn the product into a new product.
Secondary markets created by companies like B-Stock and Optera improve product circularity by extending the life of products or their parts. These markets create a win-win-win situation – for retailers, secondary market makers, consumers and the environment.
The UK’s Waste and Action Resources Program (WRAP) has shown that extending the life of a typical garment by an additional nine months can reduce the impact on carbon, water and waste by up to 10%. of each product. Patagonia claims that selling clothing through its Worn Wear exchange program reduces the environmental impact of those garments by about 80%.
The gift of choice
Ultimately, the best way to reduce returns is to offer desirable gifts. According to a study reported by CBRE of the National Retail Federation, the gift that most consumers want to receive is a gift card. As unsentimental as gift cards can be, at least they give the recipient a choice of what to buy and reduce returns.
Returns are inevitable, but the destruction of those returns does not have to be.