I am a Marshalls shopper. For most utility purchases ranging from socks to sheets to olive oil, Marshalls is my go-to. I am not alone. My regular visits see a line of 10-20 shoppers (often families) waiting to check out against a long row of 5-10 cashiers, all ringing up $X00 basket sizes. With TJX’s (Marhsalls and TJMaxx’s parent) stock up 35% in the last year, it’s clear their model works… an amazing feat in the face of amazon and amidst hundreds of waffling retailers. The WSJ attributes TJX’s contrarian success to great prices, skillful merchandising and the temporal nature of an ever-changing inventory that drives consumers to buy on sight. The Journal also notes that off-price retailers are visited about twice as often per year as department stores, have a fifty percent higher purchase likelihood per visit and benefit from a short 25 day inventory hold versus the 100 day industry norm. TJX is truly the bright spot in the brick and mortar blight.
At the same time, given HPVP’s activity in the logistics space (FourKites, Shipbob, Roadsync), I’ve been mulling the ever-growing returns problem for e-commerce companies. Estimates are that up to 30 to 40% of e-commerce purchases are returned (versus 8% across all of retail), creating a cost structure that nearly matches the costs of bricks and mortar. Wow, that is what eCommerce companies were trying to avoid in the first place! “Free returns” can cost an online retailer as much as $15 per return in shipping and handling, and the returned merchandise itself is often liquidated for pennies or dimes on the dollar. This is the dark spot in eCommerce’s halo.
Dark spot, meet bright spot. If you put the two together, there is a great opportunity for a Marshalls-like retailer that deals only in eCommerce returns. I am calling it eTurns. Like any budding entrepreneur, I did Google research looking for competitors:
Marshalls/TJX: Certainly TJX could do this itself, but it would have to grow its sourcing to include e/retailers instead of just brands, where it currently sources most of its product directly. This may be a challenge for TJX as most other full-priced home goods and clothing retailers view TJX as an unwelcome discount substitute to their struggling sales.
Happy Returns: Happy Returns is one of a few leading startups addressing the returns issue. They partner with brick and mortar retailers to accept eCommerce returns in person for a variety of online brands and etailers, promising more foot traffic to the brick and mortar and lower returns shipping costs to online brands and etailers. After receiving returns through Happy Returns, etailers resell or disposition returned products as they normally do. I love Happy Returns’ marrying of online and offline retailer needs, but the approach still means an extra forward and reverse shipment for a returned item to reach ultimate sale. Meanwhile, time lost in Happy Returns’ supply chain increases the carrying costs and obsolescence risk of returns.
Optoro: Optoro is another startup making strides in this space. Optoro takes ownership of e/retailer reverse logistics, receiving returns to its own warehouses, assessing quality and remarketing at reduced prices on Amazon, Ebay, and its own site Blinq for ~20-70% off retail. Remnants are then sold in bulk at its own site Bulq for pennies or dimes on the dollar. Certainly this service helps e/retailers outsource the headache and distraction of reverse logistics while monetizing returned merchandise, but it still relies on multiple extra round trips and a longer obsolescing supply chain.
The missing link in these models is speed to (re)market to avoid obsolescence and forgoing additional shipping and handling. If these two problems are solved, more value can be captured from returned merchandise.
Meet eTurns! (no, not that eTurns)
eTurns is a brick and mortar retail concept carrying only merchandise from “local” eCommerce returns. Returns are collected from eTurns bins around a city or neighborhood, as well as at eTurns locations, for a timely refund from the original etailer. eTurns takes the merchandise on consignment and revenue shares the proceeds with the original seller. Like TJX, eTurns is a discount retailer of unique name-brand items with fast inventory turns, reducing obsolescence and increasing consumers’ propensity to buy on sight.
With retail rents declining and billions of dollars in returned merchandise supply increasing with the market at more than 20% a year, the model could really have legs. It is also self-merchandising. An eTurns location would be a bit smaller than the average 28,000 square foot TJX, servicing concentrated urban neighborhoods where consumers are likely to order (and return) items that others in their neighborhood are also likely to want. This increases the chance of finding a returned item’s “next best buyer” through common geography.
There are certainly holes to poke in this model – imagine the glut of inventory from Holiday returns – but it feels worth the try. If shipping round trips and time-in-supply-chain are minimized, the drag of returns on e-commerce could be greatly reduced. And who doesn’t love a good deal? Okay, so it doesn’t exist yet. If there is a tenured entrepreneur out there interested in giving this a run, let me know!