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‘Tis the Season of Not-So-Happy Returns
Can you feel it? I can. Always will. Haunts me.
The sound of the returns, like an ominous storm in retrograde, unsold inventory backing in on you from retailers everywhere, reducing holiday sales results. All part of the cruel retail game.
I used to fear this time of year when I worked in the book industry and later the packaged goods’ software industry, because large retailers stand between the producers and the purchasers, so you cannot truly know what actually sold to an end-user until well into March. Many of those “sold” gifts are returned by the recipient as well, only adding to the inventory turmoil. Some companies have an inventory system that makes use of magnetic labels to help them number their stock, but unfortunately not everyone has something like this in place.
For those that haven’t, sales commissions and bonuses need to be paid, yet they do not know what actually sold through. Annual results need to be reported, pay raises given or not, plans completed.
The book industry is among the worst in this regard, employing an antiquated business model that hurts everyone along the way. Retailers are pushed to load up for the holidays, early sales estimates look promising so reprints are ordered and shipped. After the holiday blitz, when the invoice comes due in February, the publisher’s sales and accounting teams suddenly catch wind of the impending invoice reductions for returns.
Turns out sell-through was not that great, 35% of the product is coming back from retail. The finance team reserved for a 20% returns rate. The publisher moves urgently to declare the book out-of-print to stem further returns, forcing the bookseller to mark down and dispose of remaining inventory instead of taking a credit on their invoice. Which further delays their payment and possibly propels them out of business as they decide whether to pay the tax man or the publisher.
The authors are out of luck. Their book’s life was cut prematurely short. A fast and furious game of roulette with no winners.
The software industry was smart enough to sell their goods on consignment starting in the late 1990s, a trend driven by large retailers Staples and Best Buy looking to reduce all the reverse-flow returns chaos. The cost in the stores to pull product from shelves, in the warehouses, in the accounting departments — just staggering. Packaged goods’ software publishers resisted at first but then discovered it was a major improvement. The retailer stocked more inventory without the ownership risk. They worked through their inventory instead of returning it for credit. Eventually when a new version came out, they destroyed the old one in-field as instructed. Similar to the fates of magazines and mass market paperbacks.
The consumer products hardware industry (e.g., cameras, phones, tablets, GPS, etc.) is the worst: you cannot reliably estimate true sell-through nor would you destroy in field, so you load up the channels for the holidays with a full line of price points and models, and then grind your teeth this time of year when the returns start showing up back in the warehouse. The unopened products need to be received, go through QA again, be re-flashed with the latest firmware updates, loaded with the latest software, and stuck back in a new box on a warehouse shelf waiting for hopeful “future marching orders.”
This returns nightmare is one of the main reasons I believe so strongly in digital goods and why they can and should cost the end-user less. Streamed content. Ebooks, photos, movies, and music. They don’t come back and create nightmarish churn. This is another of the revolutionary advancements that the digital world brings to our otherwise antiquated physical goods and retail business models, which continue to be in decline in part due to these inventory inefficiencies.
And it is not just brick-and-mortar retailers. Amazon surely is one of the newest sources of bi-polar anxiety for product producers, as they reorder feverishly after Black Friday causing producer elation, run their Holiday Daily Deals, only to reach mid-January and realize the demand was not what their algorithms projected, resulting in sudden producer depression syndrome (SPDS). Back comes the product, which given Amazon’s impact on most businesses can amount to 40% of all the producer’s product available in the field. Ouch.
So for those of you living through this returns season, you have my deepest sympathies. It is a cruel game and depending on what the real sell-thru looks like after all the counting is finally complete, jobs may be lost or gained.