Will Online and Marketplace Sales During COVID-19 Crisis Lead to Huge Return Requests?

Frustrate entrepreneur small business owner

As the COVID-19 pandemic emergency became more real for people, products flew off retailer shelves creating immediate shortages of many household items that couldn’t be resupplied from warehouse inventory.

Never before has toilet paper been so popular that finding a few rolls is like finding gold and social media became flooded with toilet paper memes as people were amazed by the panic buying of the product.

But it’s not just toilet paper; it’s cleaning products, masks & gloves, soaps, foods like pasta and canned goods, paper products, and even laptops as more businesses are sending staff home to work from their house.

But it’s not just retail shelves, the same phenomenon of need and “panic” buying also occurred online.

Stories of people hoarding unreasonable amounts of products or trying to sell them at inflated prices trickled into the mainstream news media.

Amazon ran out of products so fast, they had to suspend accepting Amazon FBA shipments from many product categories to give their logistics operations breathing room to focus on high-demand goods customers are expecting the company to stock.

The company had to decide between hurting thousands of small businesses or ensuring its valued Prime Members would be able to buy the goods they need. They chose the latter.

From a reputation and PR perspective, that had to be a tough decision as Amazon relies on small business third-party marketplace sellers for over 50 percent in sales on its platforms around the world.

Some marketplace sellers got lucky as they are in the right high-demand categories and sold out item items quickly. It may have seemed a little like Christmas in March.

Unfortunately, some unscrupulous sellers smelled an opportunity to raise prices and gouge customers trying to turn a quick buck. Both Amazon and eBay have been working to remove listings and bad sellers to stop unreasonable profiteering with varying degrees of success.

While for some sellers this rush only provided a short-term revenue boost as they can’t make or find new inventory, some sellers produce high-demand products domestically. Others may have supply relationships that do allow them to restock popular items.

In either case, it appears with an ever-longer list of Shelter in Place Orders, more consumers will be shopping online. But there is a potential catch!

What’s The Problem?

As it becomes clearer this COVID-19 emergency will last longer than some people envisioned, sellers in the high-demand categories may be feeling a bit of a relief. Sales are up, and they are not facing existential ruin in a matter of weeks.

This is in stark contrast to sellers in so-called non-essential categories that are wondering how they will survive huge drops of sales. Even when the emergency ends, many fear the rebound will be slow.

So, what’s the problem for sellers in high-demand products? Returns!

Unlike a “regular” emergency or crisis, when consumers buy products for a few days or weeks to cover a temporary disruption, this COVID-19 emergency has no definitive end date.

“Experts” and politicians are all over the board how long this will last, bringing more confusion and uncertainty to consumers.

As National Guard troops are called in to help and settle into parking lots, parks, and large buildings in some parts of the country, it just adds to the anxiety this will not be over soon.

As long as there is no foreseeable return to normality, people will continue to buy more products they think they may need going into the Summer or even early Fall.

With this increased buying (hoarding), the first signs of national and regional retailers limiting returns have emerged.

Media reports indicate Costco is limiting returns at some stores, and it’s not certain if this is a store-by-store or corporate decision as the company has not commented on this.

Florida-based supermarket Publix has issued an official no-refund policy applicable to most products it sells in its 1,200 plus stores in the southeastern United States.

As large retailers are trying to determine best operational practices with an unprecedented emergency for which they do not have a ready-to-go crisis plan, the industry is looking at each other how to manage it.

When the panic buying started, Dollar General stores were one of the first out of the gate with Senior Only hours, which was quickly copied by many major retailers.

It appears if something looks like a good idea, it will be duplicated. As fast as the situation is changing today, there is no real opportunity to consider unintended consequences with some decisions.

Therefore, consumers should expect more return restrictions from more retailers the longer this COVID-19 emergency lasts, including their online operations.

This may be just a strategy to reduce hoarding and the big retailers will quietly still accept returns. There is also the possibility some consumer protection laws or other government decrees could reverse these no return policies.

It’s all very new territory and no one really knows how to best manage it.

What About Marketplace Sellers and Small Business Webstores?

This is where it gets a bit more complicated.

Online merchants who operate their own stores have the greatest flexibility to adjust return policies.

It is a tough call because no one wants to alienate a customer, but merchants also do not want to get stuck with a massive wave of returns.

Competitive considerations and long term financial stability play a considerable role in this decision. What is best for today or next month may become a problem for future growth and reputation.

For online merchants not selling on marketplaces, there is also the issue as “value-add” payment services such as PayPal have very liberal buyer protection policies.

Many sellers probably have lost PayPal cases where the buyer sent the item back, regardless if they had a return authorization, and PayPal refunded the buyer in full.

Often, credit card companies allow charge-backs for the full amount after the merchandise has been returned. Again, no matter if the buyer had a return authorization from the seller.

If an online merchant changes their return policy, sales after the effective date of the new policy are more likely not coming back if the new policy is appropriately disclosed. But such a change may also result in lowering sales! Again, it’s not an easy decision.

For marketplace sellers on Amazon, eBay, and even some other niche marketplaces, this issue is mostly out of their hands.

Since marketplaces mostly dictate return policies to sellers, small business sellers that are experiencing a windfall from panic buying and hoarders may also be opening themselves up to a potentially big financial liability later.

On the surface, Amazon may appear to have self-interest to limit returns at some point and that would benefit Amazon FBA sellers in the high-demand categories as well.

However, Amazon has a reputation for being super consumer-friendly and keeping market share is more important than short-term financial considerations.

The company already has to manage a PR and reputation problem with FBA sellers when they restricting many categories for inbound shipments, so it is unlikely they would create another one with consumers.

It is far more likely Amazon would just accept returns, regardless of short-term financial considerations. Also, expect the company to honor A-to-Z Guarantee claims, even if buyers file them under somewhat false pretenses that just want to return the product for a refund.

eBay and other marketplaces have similar liberal return and claims processes as Amazon. So, all sellers on marketplaces need to brace for the potential that items may come back, regardless if the return or claim reason is appropriate.

What is already a contentious problem among sellers may become worse as consumers get more into debt.

Between layoffs, furloughs, and stockpiling of goods, credit card bills will arrive shortly and some consumers will look at their stockpile. What do I really need? What can I return?

Today’s sales surge may become tomorrow’s liability.

Returns Spill Over to Other Categories

While it would appear this potential returns liability problem may be limited to high-demand category sellers, real-word life decisions could have a spill-over effect on all categories.

The longer this COVID-19 crisis continues, the more acute the problem becomes as more buyers find themselves in a financial dilemma. They may rather return a product for even a partial refund versus being out of the money completely.

Especially on marketplaces with buyer protection policies, there could be a significant increase of “false” claims in addition to regular return requests.

This problem could be especially traumatic for part-time and micro sellers that look at each sale as extra cash to pay their business or personal bills during these trying times.

eBay may have unwittingly contributed to this potential problem by encouraging sellers to list more with a seller promo that offers up to 100,000 free listings.

What Should Marketplace Sellers Do?

There is not a simple answer to this question and sellers and online merchants should not stop selling. But sellers in all categories should make prudent decisions.

Here are some suggestions on how to move forward. This is meant as a thought-starter, not a definitive guide:

  • Micro or occasional marketplace sellers probably should wait out the return policy timeline before using the proceeds from their sales.
  • All other sellers need to look at their average monthly returns and refunds rate, consider a 2 to 3 times multiplier, and keep cash on hand to deal with the possibility of higher returns. Those sellers in the super high-demand categories may want to increase the return multiplier by five or more.
  • Sellers who sell business consumables such as ink, toner, paper, etc. are probably in better shape versus sellers that sell household consumables, especially products in the “hoarded” categories. Most people buying office related products today will use them as they are working from home and often will be reimbursed by their employer.
  • While luxury items such as watches, purses, and jewelry have sinking sales, anything being sold today is probably a bit safer from a rush on returns as buyers in these categories tend to be more financially secure. But again, be careful to spend that money quickly as returns in these categories are also more substantial financial hits.
  • Sellers should review the product mix they have listed on marketplaces. Even those sellers that have quick access to items from wholesale suppliers may need to consider the time and effort to deal with returning such non-stocking items to their wholesale distributor.
  • Beware of “opportunities” to sell high-demand household products. The potential to get stuck with these products may not just be from returns. Marketplaces are actively trying to eliminate opportunity sellers and it’s easy to get caught up and banned, even if the selling price was fair. There is a hypersensitivity to this issue, so sellers should be cautious when switching from their usual categories to something different.
  • Be wise, be smart, make financially sound decisions.

The bottom line is all sellers need to make a risk assessment of their business, regardless if selling on a webstore or marketplace.

Sellers need to look at their financial situation today and in 30 days from now and how the decisions they make will impact them later.

These are uncertain times. It’s best to plan or decide on what you know versus what you don’t know.

How are you approaching sales today and are you concerned about a rush on returns?

Please use the comments section below or head over to our Facebook Group for Small Business Sellers and interact with other small business owners.

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