Ecommerce returns account for almost 20% of all goods sold online, according to the National Retail Federation (NRF). For multi-chain e-tailers, this is a pricey proposition. Returns usually indicate that the seller has paid for shipping twice (to and from a consumer) but has not received a sale.
Returns from ecommerce must be examined and packed, which takes time. That is, if (and this is a big IF) the merchandise is returned in good working order. Furthermore, you’re gambling that the item won’t fall out of style or expire before it can be resold. Even brand-new merchandise may end up in a liquidation warehouse or in the trash heap because most returns are unlikely to be resold at full price.
With all that being the sad and unfortunate truth, many brands are approaching their returns processing slightly differently. Instead of discarding it or selling it to a liquidator, where companies are unable to control how it is sold or even the brand under which it is sold, many retailers are choosing to make mass donations of returned items to various charitable organizations. Within the industry this practice, known colloquially as “recommerce” is gaining popularity – and for good reason!
Of course, the altruism feels good and likely stirs up some good karma for brands making donations, however there are other reasons to consider recommerce. For example, the tax implications of making such large donations are massively impactful on companies bottom lines. According to the federal tax code, If the combined value of all property donated – wither by an individual or an entity (like a brand) – is more than $500, federal tax law allows the donating body to claim a deduction for the value of all property. The only real qualification is that donations are made to certified charitable organizations, and that deductions are itemized on tax reporting. The resulting tax exempt status brands receive from donating their returns instead of liquidating or trying to resell them second hand are substantial – so much so that for some companies, recommerce practices have padded profits more so than any effort to retail the returned merchandise at a discount.
Is Recommerce Right for Your Brand?
As with anything that sounds too good to be true, however, there are some considerations to make. When donating ecommerce returns, the donating company must assess the charity and ensure it will take what’s being supplied. This would seem an easy box to check, but the parameters charitable organizations place on the type of charity they accept are often pretty strict. The second piece that can get tricky is determining how donated merchandised will be valued, and finally the logistics of getting returns where they need to go – in other words, how to get merchandise from point A to point B. Its also likely, as with any organization accepting bulk orders of product, that the charitable organization will have some receiving requirements. In cases where charities are particularly finicky about how bulk orders should be palleted and received, it might be wide to employ the help of a 3PL. At Fosdick, we are well acquainted with the both bulk shipping requirements and the receiving side. This makes companies like Fosdick valuable partners as brands hope to participate in recommence as a means of handling their returns processing.
The majority of the time, however, organizations that accept gifts-in-kind do most of legwork for brands. These organizations will accept most of your overstocks and returns at any time of the year, whether it’s a truckload or a few cartons. A good charitable partner will also ensure that they are a qualifying charitable organization and provide the proper documentation of such status; as well as provide you with a detailed accounting of how your donations were used.
Recommerce in Practice
Each year, quality, brand new merchandise is supplied to U.S. schools, churches, and NGOs thanks to the generosity of contributors, helping them to stretch their budgets, get more done with less money, and even expand programs. Educational materials, safety equipment, literature, clothing, crafts, office supplies, and a merchandise of other items are among the items donated. Many of the country’s largest firms have learned that in-kind donating is tremendously helpful to their bottom line while also doing good. Charitable giving is generally a sound business practice and creates a ton of good-will towards participating brands, but companies can also be confident that goods will not be sold on the open market or that their brand will not be diluted. Not to mention, the significant tax deduction.
Regular C corporations can claim a tax deduction equivalent to up to twice the cost of donated products when they give inventory to qualified organizations (also known as 501(c)(3), according to Section 170(e)(3) of the Internal Revenue Code. Deductions are equivalent to the cost of the donated inventory plus half of the difference between the cost and the fair market-selling price, up to twice the cost.
For instance, if your product costs $10 and you sell it for $30, you’ve made a $20 difference. $10 is half of $20. So, a $20 deduction = $10 (product cost) plus $10 (half the difference). It is an allowed deduction because $20 does not exceed twice the cost of the product. That’s all there is to it. There is no single solution to the problems that ecommerce returns cause. However, in-kind donations can be an important element of your company’s solution and will undoubtedly benefit others.