Returns

Returns for any reason are a necessary part of product sales and often, those returns are calculated in the new price as a cost of doing business. The focus of returns management is on the customer experience to retain a loyal customer, and the items themselves are treated as a problem that needs to be resolved. Returns become excess inventory that needs to be removed and the answer is often quick liquidation. While liquidation yields money that was not part of the profitability calculation, if done carelessly it may result in increased costs to the business in fines and brand damage from data breaches and illegal dumping in developing countries. But done responsibly and sustainably, returns can present an opportunity instead of a problem.

Liquidation is being fueled by the increasing number of returns that retailers must manage.

Liquidators are setting up strategically located warehouses to quickly process returns and sell them at auction. Markets for “like new” products continue to expand as buyers become comfortable with buying refurbished products. Up and coming generations are not fixated on new as much as they are on value. They often desire the latest technology but value a good deal and are ok with choosing like-new over brand-new. While there is a market for refurbished products, liquidation is not the same as refurbishment. Since it does not test the products to determine its functionality, one risk to your brand is that the customer buying the “like new” or “open box” product may get something defective. Not only will they return it, but the retailer and the manufacturer may take a hit to their brand’s reputation.

Electronics come back for a variety of reasons…

… but we cannot assume that just because it is a new product being returned, it is in working order. This is where many returns processes go wrong. Vendors offering the best return value are typically cutting corners to cut their costs. They are visually grading instead of really testing the returns and selling them all around the world, often into developing countries. The problem with visual grading is this: if it is working, it is a used electronic (UEEE). If it does not work, it is a waste (often called WEEE or e-waste), and wastes are subject to many other legal requirements and restrictions.

Cheap products lack the margin to make them worth testing or repairing. These often become what is known in the industry as “Beyond Economic Repair” (BER). Frequently, they are liquidated without any testing because every touch quickly erodes the very little value they hold. If they need some repair, they quickly become BER because of cost to repair outpaces their value. Often times the BER calculation is relative to the region where it is located because of the variation in the skills of laborers, the costs of labor, and the tools to test or repair. What might be BER in the United States, may not be considered BER in Rwanda, even for the same device. The danger with BER equipment is that it is often sold in unknown or broken condition through auctions to the highest bidder, ignoring the liabilities of data or environmental risks associated with them if not responsibly managed by the Buyer. BER presents a dangerous risk on many fronts.

Furthermore, the first time an electronic device is powered on it is often storing data about the user – their Wifi network, password, user ID, etc. Information may be personal or confidential and needs to be erased before given to another user to protect the customer’s identity. While returns can generate additional revenue, irresponsible returns could destroy your real business and brand through just one data breach or illegal dumping event. Imagine your brand on the cover of National Geographic in a pile of burning electronics attended to by children scrounging for shreds of valuable scrap…

One that is not focused exclusively on the amount a business can get to liquidate a device and instead considers a balance between the financial side and maximizing reuse potential and/or recycling of the materials. The result provides a healthy value recovery on your returns without jeopardizing your future. It’s a circular economy that you can create in your own supply chain, and an opportunity to showcase your green business process and your corporate social responsibility. And it’s an opportunity to do good while being a responsible corporate citizen.

What if instead of liquidating customer returns as a cost of doing business, businesses tested and repaired the electronics and then used those electronics as replacements for other returns?

Could we reduce waste and additional manufacturing, which is more harmful to the environment by simply fixing the broken returns?

What if we harvested parts from returns and used those for repairs or sold them back into the market for others to repair?

It is an opportunity to supply components from your returns instead of manufacturing spare units and parts. That’s green in many ways. It reduces the greater environmental impact of manufacturing, for both parts and new units. By helping people repair units they already have, it extends the useful life and reduces manufacturing impacts. It also employs the old practice of making money on the repair parts as well as the new equipment. Think of it is as servicing the full lifecycle of the product.

This could be a win beyond the one-time sale of one device and an opportunity to expand your customer base to those who would not buy your product new. If the product works well, you will gain a loyal customer.

Keeping up with increasing returns is a daunting task and cost on the business, but having a better understanding of the process, risks, and rewards should help improve outcomes, not only for your business, but all around the world.

for a more sustainable management process for returns: