While much is being written about expected holiday sales, the flip side of retail returns is also an interesting business, with consumers returning about $264 billion worth of merchandise, or almost 9% of total sales, according to industry estimates.
But, what happens to all that unwanted or defective merchandise that doesn’t make it back on the retailer shelf?
At Wal-Mart, these castoff products make their way back to one of six regional return centers across the U.S., like the large return warehouse in Bentonville. With more than 4,000 stores in the U.S., each return center serves roughly 680 stores. Wal-Mart’s returns are relatively small despite the company’s liberal return policy, according to a company spokesman. That said, merchandise castoffs are a business entity of their own for the retail giant.
Raul Castilla, director of reverse logistics at Wal-Mart, said each year the retailer processes 45 million cases of returned merchandise through its regional return centers. He said 40% of that volume will come through in January and February following the hectic holiday buying season.
Over the next couple of months, Castilla said Wal-Mart adds seasonal help in its return centers as well its stores. The local return center in Bentonville is 225,000-square-feet of space and employs 400 workers throughout the year. The center runs two shifts Monday through Friday each week.
Inside each massive warehouse, Wal-Mart sorts the returned products into four tiers: Vendor for credit; donation to United Way; recycle; or landfill.
Castilla said defective merchandise typically goes back to the supplier for credit, except when the vendor approves the items for donation. Each year Wal-Mart return centers collectively donate more than $100 million of product to the United Way. In Northwest Arkansas those donations go to dozens of local charities like the women’s shelter in Bentonville and numerous food banks.
“We try and get the most out of each product that is returned, that’s part of Wal-Mart’s sustainability plan. When products aren’t sent back to the vendor for credit or donated to charity, they are either recycled or sent to landfill as the last resort,” Castilla said.
Packaged goods, home wares, toiletries, cleaning supplies and dry goods that can be used by charities are donated. Items like perishable foods go into the retailer’s organic compost pile. Metal, plastic and copper items are recycled, and more recently electronics are refurbished and sold as such, on Walmart.com.
Earlier this year, Wal-Mart opened in Rogers a recycle center for electronics and hired 80 workers to refurbish and certify electronic devices that could contain consumer data.
“We opened this center in April. They take smartphones, tablets and computer returns, wipe them clean and certify them, which has reduced our e-waste. We also use another refurb center in Tahlequah, Oklahoma, that is run by the Cherokee Nation to do similar work for Wal-Mart,” Castilla said.
Those items are then marketed as refurbished on Walmart.com.
“This has been a good program, reducing e-waste and providing lower cost electronics for consumers who don’t mind purchasing certified refurbished,” Castilla said.
Most of the time, up to 70% of electronic returns are related to buyer remorse, not defective products, which makes the refurbish centers a valuable addition to the retailer’s reverse logistics plan, according to Castilla.
He said a very small percentage of Wal-Mart store returns make their way into the “Associate Store," as most often that product is overstock, end of season or samples that come from the retailer’s layout center, also in Bentonville.
In a year’s time Castilla said 30% of customer returns are related to defective items, either torn packaging or some damage in shipping. Store managers are trained in the company’s four tier system, restocking what they can and then following the company procedures for the rest.
Customer returns also have come under scrutiny across the retail industry with reports of a rise in return fraud that is also more prevalent in the holiday season.
The National Retail Federation reports that retailers lose an estimated $8.9 billion annually, with nearly half of that occurring during the holiday season. Last year, 60 retailers polled by NRF estimated 4.6% of all holiday returns are fraudulent.
"Return fraud comes in a variety of forms and continues to present challenges for retailers trying to grapple with the sophisticated methods criminals are using to rip off retailers,” said NRF Vice President of Loss Prevention Rich Mellor, said in a report the 2012 holiday season.
“Even more troubling is the fact that innocent consumers often suffer because companies have to look for ways to prevent and detect all types of crime and fraud in their stores, oftentimes resorting to shorter return windows and limitations on the types of products that can be returned,” Mellor notes.
Wal-Mart has a customer-friendly return policy which allow consumers to bring back items without a receipt, but caps the cash refund at $25.
“Our goal is to satisfy our customers by exchange, refund, or repair, as outlined in this policy. For items purchased on walmart.com, the retailer lays out instructions and guidelines here," the company stated.
Wal-Mart said it has adjusted its return policy for the holiday gift buying season for items that have a limited return/exchange period (15 days, 30 days, etc.). For these items purchased between Nov. 1 and Dec. 24, the limited return period will begin Dec. 26. This includes items such as TVs, cameras, computers, DVD and music players that can have a 15 to 30 day return period.
Wal-Mart, like a growing number of retailers, also track returns as the customer must show a form of ID and sign the return slip.
“In the event that a customer has returned more than three items without receipts within a 45-day period, the cash register system will automatically flag the transaction, and a customer service manager or member of management must approve the return. These cash register messages will remain for six months and will disappear if there are no more returns during that time period,” Wal-Mart states on its website.
Other retailers like Best Buy, J.C. Penney, Victoria's Secret, Home Depot and Nike have created “return profiles” with help of service providers like The Retail Equation (TRE) in Irvine, Calif. Some consumer advocate groups argue that saving this data is a form of privacy invasion, but TRE said it does not share the data with anyone other than its client.
Best Buy requires consumers to sign a cash register receipt that plainly states the company’s return policy, which includes the information that tells customers returns are tracked.
Home Depot defends the tracking it does on returns saying it’s necessary to protect the company’s bottomline and the protect the communities in which it operates.
The NRF survey last year found that wardrobing – the return of used, non-defective merchandise like special occasion apparel and certain electronics – is a huge issue, with 64.9% of retailers reporting they have been victims of this activity within the last year. Additionally, 45.6% have found criminals using counterfeit receipts to return merchandise.