With the expansion of eCommerce, the return rate for consumer electronics has been steadily increasing. Due to the complexity of return logistics, many companies have adopted an “anything goes” policy. This has lead to an over 20% average return rate, the majority of which are unused or never even opened.
The initial impact of is obvious, a decrease in revenue, but the problem runs much deeper.
Consumer Electronic (CE) Manufacturers often choose to “Destroy-In-Field” (DIF) rather than deal with their returned goods. Not only does this leave enormous recovery on the table, but they often pay the retailers to “destroy” the product. The “destroyed” product can frequently end up on a liquidation pallet and get sold online in a dishonest state (like selling used as new). This disrupts minimum-advertised price (MAP) and lowers consumer confidence in the brand.
Most CE Manufacturers rely on foreign manufacturing using 3PLs to import their goods. Many don’t have a warehouse at all, so they rely on the extremely expensive and inconsistent “triaging” by their 3PLs in order to properly credit their customers. They’re then left with endless pallets of unsorted, raw returns that can only be liquidated for pennies, disrupting their own market. Most CE Manufacturers have an enormous overflow of these pallets racking up storage fees.
Some more savvy CE Manufacturers will see the value of refurbishing some of their higher-value products. But once they’ve shipped their pallets to a refurbisher, paid a refurbishing fee, shipped back, then shipped to a customer—they’ve often spent more in freight than the product is ultimately worth.
Most CE Manufacturers do not refurbish/resale their own returns. Even those that do, often don’t do it well. There’s significant differences between manufacturing and “Re-Manufacturing.” It takes a different skillset, technology, operations, and process for everything from the triaging to refurbishing. Even a separate, specialized sales team and channels are required to sell the refurbished product. Most decide to stop their efforts soon after starting and, again, are left with a warehouse full of unsellable product.
The default flow of manufacturing in China and importing to the US has been interrupted for many. CE Manufacturers are no exception, but they may be even more vulnerable than most due to the usually lower margins in Consumer Electronics.
The above challenges have led to price increases—decreasing consumer demand and making a returned unit even more costly due to increased freight. This has interrupted even the refurbished resellers market, leaving those who buy used inventory to refurbish in a risky situation due to rapid price fluctuations.