What retailers do with unsold and returned Inventory?

 

Every year retailers and manufacturers end up with millions of unsold inventory that they are sending straight to landfill and with apparel they often burn it. In the US, it is creating 5 billion pounds of waste a year and over 15 million tons of CO2/year. In Germany, 10-20% of the clothes remained unsold which is an estimated 230 million items each year. The amount of inventory wastes only grows as retailers like amazon brings more shoppers online, where the rate of return is 25%, compared to just 9% for the in store purchases.

What is amazon dong to cut down cut down on wasted inventory and landfills?

A returned Item takes a very complicated journey to go back to the manufacturer, it goes back to the distribution center where the goods can sit for a while and they end up going to liquidators and vendors later they get passed to smaller regional wholesalers and return to dollar stores, thrift stores, pawn shops, eBay or flea markets and then they get to the customers. When goods are cheaper and used, the whole process doesn’t make economical sense, so it is actually cheaper for the retailers to dispose or throw away the returned materials. Larger electronic items such as TV has a likelihood of being damaged or getting damaged as they go through the whole process and thus they end up in landfills as well.

 

This expensive and complicated reverse logistics holds up products being resold or recycled. Most organizations don’t inspect all the items they sell to check if its resalable and the efforts they would have to put to resell it, so companies take the easy route out and destroy it in bulk thus saving time and resources of the organization. A CBS report indicated that a single Amazon facility sent 293 thousand products to a garbage dump in just first 9 months of 2019.

Amazon launched Fulfilment by Amazon (FBA) Donations after that in September through which it gives all of its sellers a choice to donate their damaged and returned goods. Donation is a default option when they are disposing unsold or unwanted products stored in amazon warehouses in the U.S and the U.K. 

 

Apparel industry is a 2 trillion dollar market making it the largest consumer vertical. It has the biggest problem with excess inventory, almost 30% of its goods never gets sold this is in part because of the current trend of fast fashion. H&M reported that in 2018, it had 4.3 billion USD worth of unsold inventory and most of these inventories ends up in landfills or is being incinerated to make way for the latest fashions.

The major reason the reason, these big brands do not want the unsold inventory in the market after the season gets over is that they don’t want their brands to be perceived to be low cost. Luxury sellers do not allow their items to be wholesale retail chains because it would degrade the quality of the brand so once the fashion season gets over most of the brands choose to incinerate their products as the brands feel it is more sustainable than dumping clothes in landfills. H&M recover the energy that is produced during the incineration of the apparels and use it as input to their power plant.  

World vision is one of the major non-profit organization that help retailers donate their excess inventory.  In 2019 world vision received 84 thousand pallets of goods which it shipped to 33 countries. These wastes are mostly sent to secondary markets i.e. Southeast Asia where the garments are donated or sold at a large discount rates. But these countries do not have proper infrastructure to deal with goods of this volume so there are heaps of waste garments piling up in these countries with no proper disposal facility.

Other secondary markets for unused goods to go are discount retailers like the outlet stores where unsold and returned goods are sent in bulk, marked and sold again. Some resellers buy these goods in bulk and they are sold again in Amazon marketplace.

Amazon introduced a separate program called Amazon Warehouse, which sells renewed goods at a discount rate.

How AI can reduce returns:

            Returns are the major reason why the apparel industry struggles so much with the wasted inventory. “60-70% of the returns are because of the returns is because of fit or style related issues” says the CEO of the True fit, a technological company that uses machine learning to match a customer’s fit and preferences so that it reduces the returns. Nike has a feature in its app where the camera scans the feet with 13 data points to suggest the right shoe size. Amazon launched prime wardrobe, a program that lets you try up to eight times before you buy them. Google on an aggregate level tries to figure out what people in different geographies are looking for and sells that data to retailers to get their forecasting right.