The Christmas gifts have been delivered, and Secret Santa is done.
Now, the work begins for Optoro, a start-up company that aims to reduce the financial and environmental costs of another great holiday tradition: returns.
Americans returned $260 billion in merchandise last year, up more than 66 percent from five years ago, according to the National Retail Federation. And a quarter of that was during the holiday season.
As e-commerce sales surge and free return shipping becomes the norm, shoppers are set to return even more this year — a cycle that started in earnest on Monday, the first weekday after Christmas.
Little known to shoppers, however, is that a majority of returned items never make it back to retailers’ shelves. Instead, the items wind their way through liquidators, wholesalers and resellers, many of the purchases ending up in landfills. According to some estimates, as much as two million tons of returned items — most of it undamaged merchandise — are thrown away each year, enough to fill over 200,000 garbage trucks.
Returns, in short, are not just a big loss for retailers. They are a big and growing environmental burden.
“The way we consume right now isn’t sustainable,” said Tobin Moore, chief executive of Optoro, which offers retailers alternative ways to resell, recycle or donate returned merchandise. “We can’t keep throwing stuff away,” he said. “There’s a better way.”
Optoro is becoming a player in the “reverse logistics” industry handling returns in the United States, one that is growing together with the rise of online sales.
And the space is attracting investors’ attention. Last December, Genco, one of the biggest operators, processing about 600 million returned items a year and raking in about $1.6 billion in sales, was acquired by FedEx.
Optoro declined to disclose sales, but said it processed about 10 million returned items a year, and has raised $80 million in funding from Silicon Valley investors.
To get shoppers used to buying without touching, web retailers have offered generous return policies. Almost half of e-commerce sellers surveyed by the retail federation — including Amazon-owned Zappos, Macy’s, Target, Saks and Gap — now offer free return shipping in many categories.
“For a long time, returns was something retailers didn’t really pay attention to,” said Kevon Hills, vice president for research at Stella Service, which rates the customer service performance of online retailers. “But it’s such a focus for companies now.”
The generous return policies have made it easier than ever to return the dress that arrived in an ill-fitting size or hue, or the drone that does not seem to work as advertised. At least 15 percent of e-commerce sales end up as returns, according to industry estimates, compared with an estimated 8 percent of purchases made at brick-and-mortar stores.
Electronics, in particular, are a huge returns category. An oft-cited warning is that if a new device takes more than 15 minutes for a user to figure out, that item is highly likely to be returned, Mr. Moore said. To cope, electronics merchants have typically set far stricter return policies than other retailers. (Best Buy, for example, offers a return and exchange period of just 15 days for most products.) But by the time an item is returned by a consumer and makes its way through the returns process, a hot new device can cool quickly. And retailers are reluctant to stock older, discounted returned items at the expense of shelf space for higher-margin, new products. Moreover, it takes time and resources to test returned electronics, to make sure they work.
In highly competitive apparel sales, longer return windows are the norm. Gap gives customers 45 days to return or exchange products; at Walmart, shoppers have 90 days to return or exchange clothing and other merchandise. Apparel retailers see an average of 10 percent of sales returned, according to a study on returns by the market research firm IHL.
“Retailers want to cut down the period of time that someone has to return the item, so they can more quickly turn it around and sell it to someone else,” said Edgar Dworsky, founder of the advocacy siteConsumerWorld.com and a former Massachusetts assistant attorney general in consumer protection.
“Especially with electronics goods, a hot item becomes yesterday’s goods so quickly,” Mr. Dworsky said. “And who wants to try to sell a returned winter coat in February?”
Still, Mr. Dworsky said, cutthroat competition in retail is forcing retailers to compete on return policies. “Extending the holiday return period has been pretty common for the past several years,” he said.
Optoro’s approach to cutting waste is to offer retailers more direct and cost-efficient ways to sell their returned goods through a software platform that tracks returns, quickly assesses which channel is the most effective for each returned item, and routes products to those channels.
For undamaged products that have a high resale value, like baby goods, power tools or tablet devices, Optoro’s software might direct products to its own discount site, Blinq.com, which sells open-box goods at discounts. (Optoro helps retailers test and grade those products.) For returns, or even excess inventory, that are available in bulk, products are routed to another site, Bulq.com, where discount stores and other off-price retailers can purchase merchandise by the pallet.
And by amassing returns from retailers, Optoro is able to find takers for products with a lower resale value, like dented metal filing cabinets and other office furniture for scrap recyclers, which pay for goods or materials in bulk. Traditional retailers typically recover only about 20 to 40 percent of the retail cost of returned goods; Optoro helps companies recoup 50 to 70 percent of the cost.
“There always will be returns, but there will always be someone who wants them,” Mr. Moore said.
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