Return rates for brick and mortar retail stores have hovered between 5% and 8% for many years, but return rates for ecommerce retailers are considerably higher, often reaching as high as 30%. As more and more consumers opt to purchase products online instead of in stores, retailers will experience higher percentages of sales coming back to stores and returns centers. In fact, in 2015, the total value of all returns in the US reached $260B, equivalent to the world’s 44th largest economy.
What do retailers do with this inventory? Most retailers have advanced systems and processes designed to get eligible inventory back onto store shelves or listed on their ecommerce websites. But what happens when an item has been returned in less-than-ideal condition, or when the retailer does not stock that item any longer?
For some retailers, items that cannot be restocked are often discarded. This most often happens when the cost of doing something else with an item (for example, repackaging it, selling it on secondary markets, or recycling it) is deemed cost prohibitive. In fact, more than four billion pounds of product get put into landfills and otherwise discarded each year.
Fortunately, there’s a better way. Leading retailers have realized that it is possible to remarket non-new inventory directly to consumers through alternate channels like Amazon, eBay, and other secondary markets. Proper utilization of this remarketing technique can deliver revenue well in excess of the cost of product, making it a valuable channel for retailers.
But retailers looking to use secondary markets to remarket returned and excess inventory must be careful to manage their costs. Done incorrectly, the costs of remarketing can eclipse the profit, turning the process into a cost center instead of a value add. We’ve seen retailers focus on three specific areas of the process in order to avoid that problem and turn secondary remarketing into a profit center:
- Invest in automated merchandising – One of the costliest functions within secondary market remarketing is the time it takes to create content and descriptions for each item, and then set the right prices. But leading retailers have automated those processes through a variety of self-built and third-party services that auto-populate merchandising content and adjust prices in a dynamic fashion. These technologies help keep the marginal cost of listing each item for sale low, making it possible to remarket even lower-value products.
- Develop capabilities for evaluating and explaining product condition – Selling on secondary markets typically involves handling product across a wide range of conditions, from brand new to broken, and conditions in between. It’s important to convey the condition of an item accurately and clearly so that customers receive products that meet their expectations and do not result in a return or complaint. But this process can be complicated and expensive, particularly if the seller is new to item evaluation. When brands invest in “test and grade” competencies, they can explain item condition in standardized and consistent ways, leading to higher customer satisfaction.
- Maximize an audience of relevant buyers – The deal-seeking persona likely to purchase secondary-market items typically does not overlap with a retailer’s primary customer persona. For that reason, it can be difficult for brands to remarket inventory, even if they achieve economies of scale when it comes to merchandising and evaluating product condition. They simply don’t have a buyer base to purchase that inventory. That’s why leading brands often partner with others that actively recruit and maintain audiences of customers specifically looking for secondary market goods. Having a primed buyer base ensures retailers can move inventory quickly and at high prices. Those retailers also use technology providers to list their inventory on multiple marketplaces simultaneously, ensuring that product is seen by as many buyers as possible and further increasing both sales price and velocity.
When retailers execute on these three strategic areas correctly, they can generate additional revenue from their consumer returns. This practice is both good for business and the environment. To learn how Optoro helps retailers solve these secondary-market selling challenges, contact us today.