CounterPoint

Staff -- JCK Online, 6/1/1998 2:00:00 AM

RETURNS REVISITED

Several months ago I wrote about the growing volume of merchandise returns. It prompted a number of supporting responses from manufacturers, who told me they’re cracking down on excessive returns, particularly from major retailers. Several will no longer accept carte blanche returns, and they say it’s working.

One manufacturer said a major retailer ordered unique goods, negotiated a rock-bottom price, then wanted to return hundreds of pieces on a one-for-one basis. The retailer seemed to think this was a pretty good deal, because the manufacturer would break even. Actually, the manufacturer would lose money – and establish a precedent. So, would he be better off not dealing with this retailer? Is the cost of losing the business worth turning down this return? Tough decisions. But what particularly galled this vendor was the attitude of the buyer, who didn’t know or care what the consequences were.

Only one retailer – Dennis Newton of Graham, Tex. – responded to my column, and he, not surprisingly, took issue with it. He argued that manufacturers are slow to respond to retailers’ problem of inventory turnover. Stuller is the only manufacturer he knows that offers overnight delivery for much of its product line. “Can you tell me why more suppliers don’t do this?” Newton asks.

Excellent question.

Remember, though, that returns are the result of retailers miscalculating consumer demand. It is the retailer’s function to choose products he thinks his customers will purchase. If he wants to ensure he can return goods that don’t sell, he should absorb the costs. It will be hard if not impossible for the manufacturer to resell the goods, so he loses the labor and overhead invested in them. He has new expenses in melting down goods and may suffer losses if a gem is chipped or broken. Unfortunately, few manufacturers address these costs when they discuss pricing or returns with a retailer.

Manufacturers could reduce returns and help retailers improve turnover by cutting waste. Antiquated controls squander time in too many plants. Materials are wasted in making more product than needed. Employees work from 8 to 4, although more flexible hours would boost efficiency. These situations affect quality, deliveries and service.

Manufacturers and retailers need to discuss these issues. In the movie Cool Hand Luke, Paul Newman summed up the situation when he quipped, “What we have here is a failure to communicate.”