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OM in the News: Recycling and Christmas Returns

January 8, 2016
Piles of inventory at a warehouse in Lanham, Md

Piles of inventory at a warehouse in Maryland

The Christmas gifts have been delivered, and Secret Santa is done. Americans returned $260 billion in merchandise last year, up more than 66 percent from 5 years ago–a quarter of which 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. To get shoppers used to buying without touching, web retailers have offered generous return policies. Almost half of e-commerce sellers–including  Zappos, Macy’s, Target, Saks and Gap — now offer free return shipping in many categories. “Especially with electronics goods, a hot item becomes yesterday’s goods so quickly,” said an industry expert. “And who wants to try to sell a returned winter coat in February?”

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. As much as 2 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. So more and more companies are becoming players in the “reverse logistics” industry handling returns in the United States, one that is growing together with the rise of online sales, reports The New York Times (Dec. 29, 2015).

By amassing returns from retailers, recyclers are 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 20-40% of the retail cost of returned goods; recyclers help companies recoup 50-70% of the cost.

Classroom discussion questions:

  1. What can operations mangers do to improve the return process and lessen waste losses?
  2. Describe the reverse logistics industry.
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