Retailers across the U.S. are considering having customers keep their returns while also offering full refunds. Many of these businesses are suffering from the “bullwhip effect” and toying with the idea that it might be financially wise to let patrons keep merchandise they don’t want.
Companies like Target, Walmart, and the Gap have reported that they have too much inventory and that they can’t afford to keep housing it, according to CNN Business. Returns merely compound the problem.
Combine the storage issues with record-high fuel prices and supply chain problems, and businesses are looking for ways to cut their losses. So now these outfits with a glut of merchandise are weighing whether it is wiser to let customers hold on to their returned goods or throw the returns on the already-too-big piles of inventory.
What retailers are seeing right now is something called the “bullwhip effect.” This is, as Bloomberg says, “the deflationary effect of retailers holding too much inventory.” Small changes in demand can cause serious disruption upstream in what is an already disrupted and unreliable supply chain.
Investor Place calls the “bullwhip effect” the consequence of “mistaken demand amplification from the retail level up to the point of manufacturing under a supply chain network.”
“Under a business context, if a retailer anticipates greater product demand based on immediate sales data, the company’s procurement team will relay requests for additional inventory to the distributor,” the website said. “In turn, the distributor will communicate the demand spike to the product manufacturer. Everybody in the supply chain benefits. That is, unless the forecast is wrong.”
In today’s situation, it turns out the big-box retailers and other outlets were “dead wrong” in their forecasts. This means they’ll need to take action to reduce inventory — both by cutting prices and letting customers keep their returns.