The Untapped Revenue Stream this Holiday Season
Bobby Wann, Co-Founder and CEO, Nok
U.S. shoppers returned $816 billion in goods last year. Approximately 25% of those returns, or about $204 billion worth of product, likely wound up in a landfill. And it’s not just billions of dollars lost: we’re talking about billions of pounds of goods relegated to waste.
This problem is only getting bigger. The National Retail Federation (NRF) expects retail sales to reach up to $5.2 trillion this year. Assuming the average rate of return (16.5%) stays flat, this means that returns could eclipse $850 billion.
The returns problem is especially prevalent for electronics and durable goods. As we head into the 2023 holiday season, a huge opportunity exists for retailers and brands of these products not only to mitigate the disastrous environmental consequences of wasted product, but also to discover a new revenue stream in Q4 and Q1: recommerce.
The Recommerce Opportunity
Consumer spending has been relatively strong through the first three quarters of 2023, but with more sales come more returns. This means that many brands and retailers are sitting on excess inventory that can be turned into new revenue.
At the same time, spending is expected to slow in Q4 for a few reasons: consumers will be contending with the start of student loan repayments, rising debt and other macroeconomic factors. As a result, this holiday season shoppers will be price-conscious and looking for deals, while retailers and brands will need to utilize every avenue at their disposal to maximize revenue.
Recommerce, or selling returned goods that would otherwise go to waste, is an untapped revenue stream for a majority of retailers and brands focusing on electronics and durable goods. Luckily, it’s not too late to implement a recommerce strategy that can uplift revenue in Q4, just in time to combat softening consumer spending.
Of course, this must be done strategically. Here are a few considerations to keep in mind:
1. The right infrastructure needs to be in place.
Setting up the system to support a recommerce offering can seem like a complex process, but the transition can be quick. The greatest challenge typically revolves around the handling of returned inventory. Fortunately, companies don’t need a complete supply chain overhaul. Existing tools can reroute products from waste, generating revenue within weeks and quickly start the process of recovering lost revenue from returned and excess merchandise that is currently taking up space in warehouses.
2. Brand integrity must remain a top priority.
Historically, retailers and brands sold returned or excess items to liquidators and independent resellers. This approach not only created new market competition but also meant relinquishing control over their brand, as these resellers typically have free rein over marketing and pricing. However, by embracing a recommerce strategy and selecting reliable partners who align with the company’s brand, businesses can retain control, safeguard brand integrity, and avoid undermining their own marketing and sales efforts.
3. Expanding the target consumer base.
Every company has inherent limits to its customer base, often linked to price. Establishing a thriving recommerce operation can result in making previously unaffordable products accessible to budget-conscious consumers. By targeting this audience, a company can expand its customer base without undercutting traditional, full-price customers.
The right strategy can ensure that brands and retailers are able to reach price-conscious buyers without impacting their current campaigns or jeopardizing their brand identity. It also pays off.
Let’s use as an example, a company that does $500 million in annual sales. That company is likely sitting on $40 million in returned products from the first half of 2023, using the previously established industry average return rate of 16.5%. Approximately, 80% of these returned items can be refurbished and resellable, or $32 million. Revenue from recommerce, when deployed correctly, can exceed 30-40% of the returned item. This means that instead of taking the full loss of $40 million in returned product, the merchandise can instead be refurbished and sold for more than $12 million in Q4.
If we expand our view to look at the retail industry at large, we know that returns could exceed $850 billion this year. This means that more than $680 billion worth of those returned products can be resold–and retailers could potentially be sitting on $250 billion of unrealized revenue that could be unlocked through a recommerce strategy.
That is a substantial amount of revenue, especially for companies that are in danger of losing sales in Q4 due to weakened consumer spending this holiday season. Not only can a recommerce strategy drive new revenue, but it will also help brands and retailers get ahead of the uptick in returns that will be sure to come their way at the beginning of 2024, following the holidays. Having a plan now will enable companies to make room for and continue to monetize returned product through the holiday season and beyond.