For many, the spring season exudes energy for spring cleaning and home improvement projects as the weather becomes nicer. Over the past two years, pandemic-fueled DIY home projects boosted sales of items such as showerheads, power tools and tiles by more than 30%.
With the fading of the pandemic and coming of high inflation, however, Americans might not be dedicating as much money toward those purchases this year. At the same time, aging homes in need of remodeling, along with higher real estate values, mean that major home improvement retailers will continue to experience significant sales hikes. And with that comes the need to manage an onslaught of costly returns.
Bulky materials represent the most significant returns issue for home improvement retailers. When new, these items are sold in carefully packed boxes stuffed with protective filling. After a customer has opened the box and decided to return a product, however, repacking and transport increase the risk of damage. This is a considerable problem for fragile materials like marble, porcelain and glass.
When high-value, damage-prone items such as windows, toilets, countertops and cabinets break, retailers lose significant margin. In addition, bulky returns take up disproportionately more room on trucks and pallets, making them hugely expensive to move around. Retailers can pack average-sized home goods pallets with about 10 times more density than bulky pallets.
To make matters worse, almost all returns require more than one trip. Retailers often must transport damaged or open-box returns from stores to consolidation centers, then on to liquidators, secondary customers, vendors or landfills.
Retailers lacking a sound reverse-logistics strategy recover less than 10% of a bulky item’s value. That’s why a good returns-management process is critical. In addition, retailers can benefit from partners that help to recycle or sell open-box home goods directly to local customers for the highest possible margin.
Returns aren’t just a financial burden for retailers; the vendors and manufacturers that make the products also share liability. When retailers and vendors partner, they sign a contract dictating the terms of damaged and open-box returns. Typically, vendor policies state the conditions under which retailers can return for credit toward replacement items. These are called return-to-vendor (RTV) terms, which typically apply to high-value home improvement materials.
On paper, the terms are straightforward. However, RTV policies can present significant logistical challenges for both parties. Vendors understandably want to limit paying for shipping and giving RTV credits as much as possible. And retailers want to recover as much as they can on every return. Finding a solution that covers all bases isn’t always easy, but technology can help.
A good first step is adopting a technology solution that brings retailers and vendors together in a shared workspace to easily view, manage and change RTV terms. It can also be used to arrive at the most profitable returns decisions for retailers and vendors alike. For example, the technology might indicate that recycling is the best path forward for both sides, despite RTV terms. This can help eliminate guesswork, improve transparency and drive higher recoveries.
Labor, transportation and materials shortages are a concern throughout the year, but especially so during home improvement season. On the labor side, retailers, vendors and reverse-logistics partners have increased wages to keep pace with the market and retain workers. Yet retailers are still struggling to recruit qualified team members.
When it comes to materials, shortages are a massive problem at returns warehouses. Such facilities require large amounts of pallets and gaylord boxes, the cost of which has skyrocketed over the past two years. Additionally, the lead time to receive those materials significantly increased.
Retailers and vendors are further challenged by higher freight costs due in part to trucker shortages. In addition to paying a premium on bulky items, they’re paying double to triple the cost of moving freight compared with two years ago.
Shortages make returns management harder for everyone. For retailers, it becomes essential to seek outside resources that have lines into the supply chain, as well as the economies of scale needed to get the job done with greater efficiency.
The home improvement season presents an incredible profit opportunity for retailers, but it’s also a major returns challenge. Retailers that invest in strategic partnerships and technology to manage the process will reduce losses and improve recovery throughout the returns lifecycle.
Scott Huddle is chief supply chain officer with goTRG.
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