3PL Best Practices for Liquidating Returns – Without Adding to Landfills

The National Retail Federation’s 2023 Consumer Returns in the Retail Industry report found that, out of over $5 trillion in total U.S. retail sales in 2023, more than 14% (worth more than $743 billion) were returned.

In a perfect world, every product would come back in pristine condition with all of its original packaging, ready to be re-sold at retail price. But, of course, it’s not a perfect world, and minimizing the cost of returns means getting the most value out of items that can no longer bring full value.

Liquidation Strategy: Tying Product Condition to Dispositioning

While each business has its own policies for handling returns, disposition of these items generally falls into three categories: resale, donation or disposal.

The best-case scenario involves a product coming back in open-box but like-new condition. The retailer can then choose to resell the item, usually at a discounted open-box rate. 

But what if that product isn’t in like-new condition? Whether from shipping damage or customer mishandling (and even fraud), some items can’t just go back on a retail shelf, even as an open box. In this case, the product usually ends up either in a batch sold to a product liquidator or (if it’s at least still usable) donated to a charity.

Obviously, the business cost/benefit of each of these choices differs greatly – especially as the retail price of that item goes up. That’s why choosing the right method of disposition for returned products is crucial to minimizing lost profits. Which method is right for each product depends on the product’s condition as determined during the dispositioning process.

Different product categories also have different liquidation options and methods for determining condition. For example, does returned clothing require dry cleaning? Can holes/tears be repaired? How should returned electronics be tested? Does it need to go through refurbishment before being repackaged for ReCommerce? How do you determine the value for each returned product so you can maximize what you get back from its disposition?

Determining this workflow and guiding your team through all of these decisions depends heavily on how your retailers choose to handle returns: with their own dispositioning process or passing the items and process to your 3PL.

Scenarios for 3PL Returns Handling

Some retailers prefer to put qualifying items back into inventory; these customers will have their own dispositioning process they want you to follow. Get clarity on how you should inspect, test, repackage and prepare these items, preferably in a written process your team can easily follow.

Often, though, the brand prefers to avoid costs associated with handling returns. They may gift or heavily discount the item to your 3PL, or ask you to take the lead on the liquidation process and give them a percentage of proceeds you recover from their returns. Either way, you need to have a clear process in place for each brand you work with to ensure your team can easily and quickly move each product through its disposition process. 

For items left to you to shift, you have several liquidation options to choose from.

Returns liquidation

Liquidation Option 1: Sell to a Liquidator

One of the common ways organizations dispose of returned product is selling to a liquidator for below-market-value of the goods, which the liquidator will then resell themselves. While this seems like an easy way to offload unwanted merchandise, you still have some decisions to make and clearly define in your returns handling process.

For example, how will you determine the value of products for selling to the liquidator? Do you take whatever the liquidator offers? Do you build a pallet and have liquidators bid on it? Do you use AI tools to analyze recent sold values for similar products on marketplaces, and use that to negotiate a better price? Is there a certain potential return on some products that prompt your team to prepare items for resale on eBay or other online marketplace instead of sending to a liquidator? 

Liquidation Option 2: ReCommerce

ReCommerce is the name for reselling used or returned products online. Many large retailers use this strategy to get value back out of their returns, including Amazon, Best Buy, and Apple (all of them sell returned electronics as refurbished).

According to ThredUp’s 2023 Resale Report, the global secondhand market will reach $350 billion by 2027 – representing the willingness of consumers to buy open-box and gently used goods.

Not only does resale of returned products help you earn some money on no-longer-new products – it also improves your 3PL’s sustainability efforts. Keeping products out of landfills and reselling them – even at reduced prices – helps both the planet and your profitability.

Liquidation Option 3: Donation

Partnering with a charity to donate returned items that can’t be resold is another way to boost brand reputation – which makes your 3PL more attractive to sustainability-minded brands. Some items, like apparel and bedding, can’t be resold once they’ve been worn, washed or slightly damaged – but they’re still usable. 

You can even reduce return costs by encouraging your brands to offer customers the option to donate the unwanted product themselves, locally. This cuts down on emissions and eliminates return shipping for items eligible for this donation model.

Liquidation Option 4: Recycling or Disposal

Finally, for products not suitable for resale or donation, you can send them to recyclers who can recover materials from them. Damaged products like small appliances and electronics may still have usable components or raw materials that can go back into new products. 

Disposal should be a last resort. If you must go this route with some products, ensure you’ve stripped them of anything harmful to the environment and dispose of them responsibly.

Returns are a natural part of doing business, especially online where customers can’t see or feel a product before purchase. By having a plan in place for handling and sorting returns into one of the above avenues, you can minimize the costs to your business – and even get back some of each product’s value.Does your 3PL need help handling returns for your retail customers? Get in touch today to find out how Octolan’s solution can streamline your returns process.

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