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The Hidden Costs of Defective Inventory

Written by Luminous Team | Jun 2, 2023 8:32:00 PM

Defective Inventory Costs

As an ecommerce company, inventory management is critical to success. Inventory is the lifeblood of any ecommerce company, and it's essential to ensure that every item that goes into the inventory is of high quality. Defective inventory items can be costly to an ecommerce company, impacting profitability, customer satisfaction, and brand reputation. In this blog article, we will explore how costly defective inventory items can be for an ecommerce company and how Luminous can account for defective items and hold manufacturers accountable for defective units.

Loss of Revenue

Defective inventory items can result in lost sales, which can have a significant impact on revenue. In a survey conducted by the National Retail Federation, retailers reported that they lose an average of 4.4% of their sales due to inventory shrinkage, including defective merchandise. For an ecommerce company with $1 million in annual sales, that amounts to $44,000 in lost revenue per year.

Increased Costs

Defective inventory items can also increase costs for an ecommerce company. These costs can include additional shipping and handling fees to return the defective item to the manufacturer or to the company's warehouse. In addition, there may be additional costs associated with replacing the defective item or issuing a refund to the customer. According to the National Retail Federation, retailers lose an average of 1.39% of their sales due to return fraud, which includes returns of defective merchandise. For an ecommerce company with $1 million in annual sales, that amounts to $13,900 in additional costs per year.

Damage to Brand Reputation

Defective inventory items can also damage an ecommerce company's brand reputation. Dissatisfied customers may leave negative reviews online, which can deter potential customers from making purchases. In a survey conducted by PowerReviews, 35% of consumers reported that they would be less likely to purchase from a company after reading negative reviews. In addition, social media can amplify the impact of negative reviews, with 88% of consumers trusting online reviews as much as personal recommendations.

Customer Dissatisfaction and Loss of Repeat Business

Defective inventory items can also lead to customer dissatisfaction, which can result in lost repeat business. According to a survey conducted by BrightLocal, 86% of consumers read reviews for local businesses, with 91% of consumers aged 18-34 trusting online reviews as much as personal recommendations. Dissatisfied customers may not only refrain from making future purchases, but they may also discourage others from doing so. A 2017 survey conducted by BrightLocal found that 97% of consumers read online reviews for local businesses, with 85% of consumers trusting reviews as much as personal recommendations.

Luminous and Defective Inventory Items

Luminous is a software that can account for defective inventory items and helps hold manufacturers accountable for defective units. Luminous is designed to help ecommerce companies track and manage their inventory, including defective items. With Luminous, ecommerce companies can identify defective items quickly and take action to resolve the issue.

Luminous allows ecommerce companies to track defective items, including the reason for the defect and the number of defective units. This information can help ecommerce companies identify trends and patterns in defective items, enabling them to take action to prevent future defects.

Luminous can also hold manufacturers accountable for defective units. Luminous allows ecommerce companies to track the source of defective items, including the manufacturer, enabling them to take action to hold the manufacturer accountable for the defective units. This can include returning the defective items to the manufacturer for a refund or replacement.