Selling open-box products during the holidays

Gifts bought during the holiday shopping season don’t always work out. According to the National Retail Federation, nearly 18% of holiday sales are returned, adding up to $171 billion. With so many gifts returning to stores, retailers are left devising different ways to handle returns, including selling them as open-box products.

Carlson School of Management Professor Karen Donohue and Assistant Professor Necati Ertekin are supply chain experts. They recently published research examining different visual merchandising strategies for combining open-box and new products. Both can speak to what retailers and consumers should know going into the holiday season.

Karen Donohue, PhD, and Necati Ertekin, PhD

“Retailers often liquidate returned products to third-party sellers or send the items to the landfill. However, our research estimates selling returns as open-box products could increase a retailer’s profits by as much as 3.3%. Seeing that revenue-generating mechanism — which is also better for the environment — may convince retailers to adopt more lenient return policies during the holidays.

"When selling open-box products, retailers can use two different visual merchandising strategies: selling the open-box products side-by-side with the new products or selling the open-box products in a separate section of the store or website. 

“Our research found that selling open-box products separately from the new products increased new product sales by 3.6% compared to selling them side-by-side. The separate strategy, however, also led to higher costs in the form of more new product returns. The best visual merchandising strategy will vary by product profile, so retailers should consider a tailored approach.

"Price-conscious consumers should be aware of these strategies when holiday shopping as open-box products could lead to savings. Before buying a new product, it may be worth checking the store or website to see if a related open-box product is offered in a separate section. As for retailers, the punchline is to try to expedite the placement of open-box products within their retail space and consider how placing those products could increase the value recovered from returned items.”

Professor Karen Donohue is the Curtis L. Carlson endowed chair in supply chain operations at the Carlson School. Her research examines methods for coordinating inventory and distribution decisions across supply chains, and for reducing the environmental impact of supply chain decisions. She draws on a number of different methodologies in her research including stochastic modeling, game theory, and behavioral economics.

Necati Ertekin is an assistant professor in the Carlson School’s Supply Chain and Operations department. He has developed a research stream that is grounded in practice with a strong managerial focus. His primary research interests center on retail operations and operations/marketing interface with an emphasis on omnichannel retailing, store labor, and the behavioral aspects of consumer returns.