So many of us receive holiday gifts we don’t want or need. We routinely return them, but where do they go? A new class of companies offers solutions that are both lucrative and sustainable.
Last year, 10.6 per cent of holiday gifts (about $428 billion in value) were returned, according to global management consulting firm McKinsey. Two of every three customers will return at least one gift in the 2021 holiday season, according to Optoro, a U.S.-based logistics company specializing in returned merchandise.
What happens to returned merchandise?
Many retailers trash, incinerate or donate these returns, given the high costs of customer service, transportation, product quality assurance, storage and restocking. Just up the road from the site that hosted the COP26 climate conference in Glasgow, Scotland, an undercover investigation of an Amazon U.K. fulfillment centre found that most returns and unsold items were destroyed.
The costs of returns, which require reverse logistics, have risen considerably now that supply chains are locked up. Optoro estimated that retailers pay 66 per cent, or $33 of a $50-product, for returned products. At this cost, it’s clearly cheaper for retailers to dispose and donate goods than to restock and resell these goods.
Closing the loop through secondary markets
Some companies are seeing this waste at the ‘end of the supply chain’ as an opportunity.
I spoke recently to Howard Rosenberg, founder and CEO of B-Stock, who is capturing the value still left in these returns. B-Stock’s web-based platform allows customers, like auction houses, recyclers and direct-to-consumer resellers, to bid on returned products.
B-Stock creates value by moving excess inventory quickly out of the warehouse at a good price. They do this through powerful data analytics, which relies on years of historical auction data and consumer behaviour know-how. This data is used to decide how to package returns and unsold items into pallet-sized bundles. B-Stock knows, for example, that customers who want lawn mowers are unlikely to buy rugs.
Rosenberg argues that the key to creating value from returns is to ensure that the inventory keeps moving and doesn’t lie in warehouses. In Rosenberg’s words: “The main rule of the game: Don’t stop the train.”
Optoro is also creating value at the end of the supply chain by offering a web-based platform. Co-founders Tobin Moore and Adam Vitarello started their business in a garage, where they sold one-off items on eBay for a small profit. Soon, major retailers were coming to them with their returned or excess items. Now, Optoro is a global enterprise with customers like Ikea, Best Buy and Target.
Towards a circular economy
The circular economy keeps physical products in use for longer, which stimulates economic value creation and stalls climate change and biodiversity loss. When products are no longer needed, people find new uses for the product or transform the product into a new product.
The secondary markets created by companies like B-Stock and Optera improve the circularity of products by extending the life of products or their parts. These markets create a win-win-win-win — for retailers, secondary market creators, consumers and the environment.
The U.K.’s Waste and Action Resources Programme (WRAP) showed that extending the life of a typical garment by nine more months can reduce each product’s carbon, water and waste impact by up to 10 per cent. Patagonia claims that selling garments through its Worn Wear trade-in program reduces those garments’ environmental impact by approximately 80 per cent.
The gift of choice
Ultimately, the best way to reduce returns is to give desirable gifts. According to research reported by CBRE from the National Retail Federation, the gift most consumers want to receive is a gift card. As unsentimental as gift cards may be, at least they give the receiver the choice of what to buy and reduce returns.
Returns are inevitable, but trashing those returns doesn’t have to be.
Tima Bansal is a professor of strategy at Ivey Business School and the executive director and founder of the Network for Business Sustainability, a growing network of over 35,000 followers from management research and practice committed to advancing sustainable business.
This article was originally published in Forbes.com. For more of Tima’s articles on Forbes visit: https://www.forbes.com/sites/timabansal/?sh=1cf75e25134d