Holiday retail sales this year may easily surpass last year’s estimated sales of $692 billion — the largest gain since the end of the Great Recession in 2010 — as a result of a resilient U.S. economy and the growing popularity of e-commerce. Retailers are undoubtedly celebrating the prospects of another strong holiday shopping season, but they will also be bracing for perhaps an uptick in returned merchandise after the new year.
Research has found that a growing number of American consumers prefer to shop online. According to a U.S. Commerce Department report released in February, e-commerce sales grew to $453.46 billion in 2017, a whopping 16 percent increase from the prior year and the highest level since 2011. That trend is expected to continue in the foreseeable future, with a Forrester Research study projecting that online sales will account for 17 percent of all retail sales by 2022.
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But the return-friendly policies of Apple, Amazon and other big online retailers have exacerbated the amount of returns, which have been expanding in recent years.
A Wall Street Journal article in February said post-retail sales of returned and overstocked merchandise rose to $550 billion in 2016, growing at a rate of 7.5 percent each year. A major contributor to the rising return rate is consumer electronics. Smartphones, laptops, tablets and other consumer tech are second only to apparel in returned goods.
Many companies are increasingly overwhelmed by a deluge of returns of electronic merchandise. For example, telecommunications company U.S. Cellular reportedly handled nearly 550,000 returned electronic devices and accessories in 2017.
Unlike the consumer electronics giants, smaller retailers find it harder to absorb the costs of returned merchandise like may have years ago. Retailers today are faced with razor-thin profit margins and are forced to find innovative ways to recover as much value as possible on returns.
With the rate of returned electronic items ranging from 5 to 15 percent, and higher for some companies, an effective strategy is required to minimize the impact of returns on retailers’ balance sheet.
Consumer tech merchandise typically goes through a triage-like process for returns. For instance, retailers tend to receive the highest value on returns of unopened boxes or packages containing devices that are placed back on stores’ shelves. For used devices that are still in optimal condition, dealers like Best Buy will sell them for a reduced price on its website along with new products.
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But what about returns that require a little fixing up? Retailers can make more money on those items by having them refurbished and made available for re-sale to consumers. That strategy avoids selling the merchandise for parts at a huge discount to a recycling company, or contributing to environmental ills like dumping old electronic devices in a landfill.
Demand for refurbished devices has been largely driven by budget-conscious consumers who don’t want to pay higher prices for new devices, as well as improvements in the reconditioning of smartphones and other electronic products.
One of the fastest-growing segments in consumer electronics, the global market for refurbished devices is estimated to be worth more than $65 billion, according to a March 2018 report from Counterpoint Research. Refurbished smartphones, which represent nearly half of the global market, grew by 13 percent in 2017, compared with 3 percent growth of new phones during that same period, it said.
Due to the sheer volume of returns, more retailers and manufacturers are turning over refurbished and overstocked merchandise at bargain-basement prices to re-sellers and other sales channels in what is known as the secondary market.
Both retailers and manufacturers benefit from unloading the goods to re-sellers who typically can get more money for the items, offer a favorable customer experience, and follow strict policies and procedures that are designed to protect brands from reputational harm. Consumers, meanwhile, receive assurance that the quality of their purchase is secure.
With the holiday-buying season only a few months away, the traditional post-holiday rush of returns could exceed past years; however, a vibrant re-sale market for refurbished and overstocked market for those returns is making it a less painful experience for retailers.
Alex Blaker is president of Tech Supplier, a Hackensack, N.J.-based company that remarkets refurbished, B stock and overstock inventory.
