Debunking the Myths of Customer Returns and the Use of Liquidation Channels

No retailer (including store, catalog and online merchants) wants to see products returned, but as the National Retail Federation reported in 2008, more than $219 billion of merchandise made its way back to retail stores through consumer returns. Many astute companies, however, are winning customer loyalty, decreasing costs and creating positive revenue by effectively managing their returns processes.

In a session at last month's Internet Retailer Conference & Exhibition in Boston, I examined the top three myths of consumer returns — and their related realities — that exist in the retail industry today.

Myth No. 1: Consumer returns are bad for business.
Reality: Consumer returns should increase customer loyalty and return substantive value.

Forrester Research finds that 81 percent of consumers are more likely to buy from an online retailer that makes it easier to return products, while 73 percent of consumers are less likely to buy in the future from an online retailer that makes the returns process a hassle.

Retailers who solve the occasional problem effectively for customers create far more loyal and frequent purchasers than those that don't. Customer-centric retailers seek to ensure the utmost in customer value by embracing returns as methods to reduce defects and improve customer loyalty.

Myth No. 2: Returns should be aggregated in a central location, processed cheaply and held to sell in bulk.
Reality: Lean engineering optimizes net recovery and sales-cycle time.

Managing returns is not, nor should it be, the core competency of retailers. The operational execution behind a return traditionally has been an afterthought. The practice of stashing returned items in a central warehouse is common. This practice almost always creates an unnecessary drag on a company’s financial performance, however.

Seek the expertise of an outsourced solution provider to develop a “lean engineering” process that makes it easier for customers, reduces the number of times products are handled/transported, reduces the cycle time and optimizes recovery.

The right partner should drive a significant increase in the liquidation value, especially when compared to the existing paradigms. There should be a direct benefit in net recovery of the surplus assets, enabling the organization to free physical resources and/or reassign human capital to tier-one objectives.

Myth No. 3: Liquidation markets are small and localized.
Reality: The right partner can access a global network of buyers — the Internet isn't small or local.

When it comes to surplus or returned inventory, retailers should understand the value of a large, active and diversified buyer base that the best partners can provide.

The current economic environment is creating permanent changes in the way retailers address their supply chains. There's a greater emphasis on creating efficiencies and value for products that are moving away from consumers. Understanding the realities of what a liquidation model can provide and implementing an effective strategy will create lasting value in all economic climates.

Cayce Roy is president of Liquidation.com, a Liquidity Services Inc. marketplace, and has spent the past 20 years managing sophisticated and high-performance e-commerce, B-to-B services and logistics organizations (cayce.roy@liquidation.com).