‘Free returns!’ That could arguably be the most widely used phrase in the post-pandemic retail world. Having a free, simple to use method of returning goods used to be a ‘nice to have’ for retailers; a differentiator that set them apart. But since the dramatic rise of online shopping, it’s now an essential for any brand that wants to survive and thrive in the competitive world of retail.

The importance of returns 

Returns are an important driver of sales and customer experience: 67% of shoppers check the returns policy before buying, and 90% say that a positive returns experience would encourage them to buy again. By its very nature, of delivering goods unseen and untried, online shopping generates a higher level of returns. Despite the re-opening of stores, the pressure to offer free returns has not let up, because shoppers have come to expect and demand it. In fact, almost half of Australian shoppers under 50 have returned an item in the last six months.

The reverse logistics approach

But for the retailer, offering returns comes at a cost – the reverse logistics needed to deliver the product back into the warehouse, re-labelled, tested, verified, cleaned, repackaged, put back into the inventory system and out onto the shelves is not an insignificant endeavour.  In some cases, it’s estimated at as much as 15-20% of the cost of the goods themselves. The problem could be compounded by micro-fulfilment – with returns scattered across multiple locations – and by seasonal items, which have to be processed very rapidly if they are not to miss the window of sales opportunity.

When returns were at relatively low volumes, the costs were manageable (or in some cases just not fully understood or captured). But retail continues to grow – over 17% in the year to September 2022, according to ABS figures – and with it returns are on the rise too. As volumes increase, many retailers simply don’t have the scale, infrastructure or resource to cycle them back to the market, and the cost of processing is putting a very real dent in their profits.

In the US, returned goods account for a whopping 2.6 million tonnes landfill every year. This clearly causes a massive environmental impact, and warrants urgent action.

For retailers, there’s another disadvantage to ditching returned products, which is the reputational damage that can be caused. Today’s conscious consumers want to buy from ethical, sustainable businesses. Forbes reports on a study that shows that consumers prefer to buy sustainable products from sustainable brands. This tendency has increased by 25% in just two years, and is cross-generational, with GenZ have a big influence on their Gen X parents and even their Boomer grandparents when it comes to sustainable shopping. Shoppers are willing to put their money where their mouth is with 90% of GenX willing to pay an extra 10% or more for sustainable products.

The link between a brand’s environmental, social and governance (ESG) performance and consumer loyalty is well established, and yet retailers have been slow to act accordingly. A recent report showed that retailers believe that consumers rank brand name higher than product sustainability, when, in fact only 56% of consumers rank brand name as somewhat or very important.

Retailers caught without a resilient, transparent and extensible solution to managing returned product risk alienating customers and shareholders, and devaluing their brand. Retail leaders have shifted their priorities and investment initiatives, with the circular economy, green/clean tech and supply chain resilience all making their way up the agenda.

Difficult choices

So where does this leave retailers and returns? On the one hand, they process the returns, but at a high cost that takes a chunk out of their bottom line. Or on the other, they dump returned goods, but risk their reputation and the support of their customers, and go against their own declared environmental initiatives.

Secondary Market – the perfect middle ground

The answer for many is the secondary market. This can be the perfect ‘middle ground’ that eliminates the cost of reverse logistics, gives retailers a financial return, and is a trump card in the hand of sustainability.

It’s a model that is rising in popularity, driven by price-conscious and environmentally aware consumers. A recent survey reported that 40% of respondents bought secondhand, secondary or refurbished goods. Threadup calls secondhand ‘a global phenomenon’ and says it is set to grow by an incredible 127% by 2026.

Partnership is the key

The secondary market is there – but for retailers, the challenge is finding frictionless ways to access it. Whilst some have the infrastructure to set up ‘pre-loved’ stores, for others the challenge of reselling secondary stock is overwhelming. In these cases, savvy retailers partner with a specialist, like Hilco Global APAC, to resell their returned goods. The partner pays for the returned goods up front, giving the retailer their cash and removing the returned stock problem.

Surprising benefits of the secondary market

Reselling goods through the secondary market, rather than trying to get them back onto the store shelves or simply ditching them benefits retailers in several ways:

• Appeal to the socially conscious consumer – by eliminating goods sent to landfill, retailers can show they are in touch with the socially conscious consumer and that they are committed to sustainable solutions.
• Reduce the cost of resale of returned goods – partnering with a specialist to make goods available to the secondary market eliminates the cost of reverse logistics.
• Financial return – selling via the seocondary market generates a return for goods that would otherwise have been written off.
• Keep customers aligned to the brand – the remarketing channel can be a chance to customers to familiarise themselves with a brand. Buying returns diverts shoppers from purchasing a competitor’s brand, and is a more attractive and ultimately more  profitable strategy.

With retail, and particularly online shopping, showing no sign of slowing down, high volumes of returns are set to be a permanent feature of the retail landscape, giving retailers the dilemma of how to handle returned products. Reverse logistics is costly, ditching is reputationally damaging. Neither is therefore the ideal solutions. Partnering to sell returned goods on the secondary market eliminates cost and environmental issues and could just be the perfect returns solution, positioning retailers to win the battle for consumers, strong brand and growth.

Companies like Hilco are advocating and encouraging their retail clients to address their returns challenge by combining the strength of their brand with curated databases of bargain hunters who regularly purchase goods for new uses. It’s why several of Australia’s major retail brands partner with Hilco to solve their returns challenges.