Hello, everyone, and welcome back to Herb's hot takes, I'm Tyler kern, joined as always by her Billings VP of technology strategy at data scanner. Welcome back. How are you doing? I'm doing great. How are you, tyler? I am doing well. Looking forward to another episode here as we talk about returns. Yes, returns are a really big deal for retailers. The number of returns has grown right alongside online shopping, so as online shopping grows, so do the number of returns. And then the cost of each return has grown for retailers as well. It's a big problem. It's a big problem. And that recaps what we talked about last week on our first episode of this series about returns. And so today, after setting up the problem last episode, the growing problem of returns for retailers today we're talking about what happens to return merchandise. And so as a consumer, I don't think this is a question that I've ever really asked myself is what happens when I returned that t-shirt or when I returned those shoes or something along those lines. So give us an introduction into what happens to return merchandise. Sure certainly, everybody has returned something, right? We've all had the experience of standing in the customer service line, making sure we have our receipt if necessary, or maybe finding a box suitable for shipping it back and then having to go drop it off at the UPS or the FedEx store. We have that experience and yet we don't think about what happens after that. I think most people assume that in fact, it's all, you know, put back on the shelf. And that's why we try to make it look like it looked when we bought it. Maybe tape up the box, whatever. But in fact, you're going to be surprised. And I know I was shocked at some of the things that happened to returns after they reach the retailer. In fact, 2005 of all items returned are thrown away and dumped in a landfill in the US alone, that's about $5 billion pounds annually. So this is a big environmental impact, not to mention just a complete waste of resources. We also have to realize that as consumers, we pay for this because there's no way the retailer can stay in business and just assume that as a normal cost, why would why would a retailer want to throw away items? They're perfectly good and perfectly new? It's a great question. Well, the cost to restock is going to be greater than the expected profit. You don't really have to look too far to see an example of that. You know, just the other day, I was looking at shirts on Amazon and I saw this polo shirt for $13. Now, as a prime member, I'm going. It sounds like an advertisement for Amazon. It's not, but they are the ultimate online retailer, right? So, you know, the shirts only $13 and is a Prime member. I get in quotes, free shipping, somebody paying for that shipping and then I don't like the shirt or it doesn't fit or ordered three of them and only one of them fits and I'll return the other two. Amazon has to fund that return shipping now. Once they get it back, there's not enough money left in a '13 dollars item to be potentially shipping it to another client. That's going to do the same thing. This is it's just it can be too much money to actually try to inspect and get it back into the right bin to make sure that it's available for the next sale. This is really crazy. Like, I had no idea that there were so many returns and how big of a problem it was. I think that example really kind of drives it home because I had really never considered anything like this before. And most people don't. Another 10% to be to keep going down the chain of what happens. Another 10% of these are donated or incinerated. Now, I don't really have the I couldn't find the stat that said this percentage was donated. This percentage was incinerated but donated is obviously a great outcome for this. People who need the shirts or need the apparel or need the item, whatever it is, get to make use of it and it's not wasted. Incinerated, however, is a completely different story. It's also an environmental impact, certainly from the burning of the items and just the fact that we're throwing away brand new resources. Another good question is, why in the world would anybody go to the time and trouble of incinerating an item? A good example might be a high end brand. They've spent tremendous amounts of money to market their brand and position it as a high end item and a luxury item. Finding those in a dump or seeing them donated. Reduces the value of the brand, so it's economically beneficial for them to dispose of it permanently. Really fascinating, really fascinating. And I obviously get to play the role of the ignorant consumer here. But but you know, the first example you gave was that I've always thought that, OK, yeah, they put it back in a different box or tape up that box or do whatever they can to make it look better and then put it back on the shelf at the original store. Right so are any returned items, you know, put back on the shelves at the original retailer? Yes, actually, there is good news. A lot of them can be returned to the shelf for resale. I've got a couple of examples that I'll throw out. One of them is a home center. The big box home centers. I'm a regular customer every week. And I have AI have a list of things that I need to buy, and sometimes if I'm not sure of the size, I will bracket it and get different sizes of the screws or the nails or whatever it is that I have to buy. And then I just returned the unused items back to the center. Well, there's no special cleaning. There's a very quick visual inspection by the person who's, you know, taking the return and then it goes into a bin and somebody restocks the shelves with that. Another one. We keep going back to apparel because it's an easy example for everybody. And a high return rate, 70% of high end apparel can be cleaned, re ticketed, repackaged and retract for sale. So it's very similar to trying it on in a fitting room in the store. And they just simply put that back on the shelf. The you know, those are some examples of items that can be resold at full price. So we've covered where a lot of these returns end up. What about the rest? Is there another bucket that any of these can fall into? Yes you know, before we get to that, a lot of the logistics of getting returns back are a challenge for retailers. There are companies that facilitate this, and at the end of that, I'll tell what happens to the rest of the returns. Yeah it can cost half as much to accept a return at a brick and mortar store than to accept individual returns at a distribution center. Interesting so it's very, very advantageous for the retailers to go ahead and accept returns from their online sales at their brick and mortar stores. This works for the MacY's, for the jcpenney's, for the Nordstrom's of the world. But there are quite a few online retailers that don't have brick and mortar stores. What in the world do they do? Well, there are companies out there that will accept them at major retailers, and we all know the example of Amazon accepting returns at Kohl's up. Toro is a company that is strictly in the returns business, and they accept all returns at Staples throughout the company. There are a couple thousand staples locations. So what is it? You know, what's in it for Kohl's and what's in it for staples is increased foot traffic, so there's ease of use for the consumer. There's increased foot traffic for the retailer. And then from there, these items are boxed up into large shipping. Maybe not a shipping container like you would see on a boat, but a large container for shipping. They are shipped economically back to a distribution center of some sort, where they are sorted and inspected and then shipped to a reseller to be liquidated. There are liquidation companies that have sprung up that handle all of these returns or a lot of these returns. But the big players are also getting into it. Amazon has its warehouse. They call it Amazon warehouse, and they will sell returned items that are in good condition and they call them used. Walmart will take electronics that have been returned and resell those on their website. Other returns, they actually have a Clearance Center inside the store. Smaller resellers that also buy these liquidated items will sell them on eBay and Amazon Marketplace as used or slightly used or dented and damaged items, and find a way to get a Second Life and a little profit out of that. Really, really interesting, so her tie a bow on this all for us, because this it's a lot of ground to cover. It's a lot of different things that happens to merchandise when it gets returned. So tie a bow on this episode for us and give us maybe a tidbit to walk away with from this here episode. Sure well, you know, we've established through the previous episode in this one that returns are a big and growing problem for the retailers, right? One of the things we talked about is the environmental impact, and this is starting to get some news play on it. It's also starting to get some attention. As a result, many, many retailers are going to have to address this. In fact, in France, in 2020 a law was passed to require retailers for returns and unused items. They require them to recycle or donate, so they're eliminating the option of going to a landfill or to be incinerated. This is this is a big deal and we should expect to see more of that. Retailers are going to have to start thinking if they don't already about the entire lifecycle of an item, not just it's out of the house. And so we don't have to deal with it anymore. There we go. That ties a bow on this episode very nicely. So her coming up in the next episode, we're going to be talking about best practices for returns. So we've set up the growing problem and also what happens with merchandise and how that can also be a problem for retailers. Now we're going to start getting into some solutions in the next episode. Are you looking forward to that? Looking forward to that? So tune in next time as we get into best practices for retailers for returns. I think it's going to be a great episode and we're going to start talking about the positive side of things presenting some solutions. So tune in to the next episode of herbs that takes four more. But for this episode, for her Billings, I'm Tyler Cohen. We'll talk to you soon.
