Preventing Expiration-Related Retail Chargebacks

E-commerce businesses face two critical concerns regarding perishable and time-sensitive goods: the financial penalties imposed by retailers, and the potential harm to consumers. Retailers are increasingly prioritizing consumer safety and brand reputation, leading them to enforce stricter standards on product shelf-life. When brands deliver products that don't meet these requirements, retailers issue chargebacks to recoup costs and penalize non-compliance.

The ramifications for failing to effectively manage expired goods extend beyond these chargebacks. If expired or near-expired products reach end consumers, brands may face recalls, legal liabilities, and severe damage to consumer trust.

Adding to this complexity is the lack of a universal industry standard for shelf-life and packaging. Instead, these requirements are often determined through a combination of brand specifications and individual retailer demands. This means e-commerce businesses must navigate a landscape of diverse and often conflicting requirements from different retail partners.

To protect profitability, maintain strong retail partnerships, and, most importantly, safeguard consumers, brands must implement methods to prevent these costly chargebacks and ensure compliance with the intricacies of retailer-specific expiration date requirements.

Direct and Indirect Costs of Expiration-Related Chargebacks

To grasp the importance of preventing expiration-related chargebacks, it's essential to look at the penalties and understand the full spectrum of the repercussions.

Direct Financial Losses

The most immediate consequence of expiration-related chargebacks is the financial penalty that retailers impose, typically in the form of fees and fines.

While not all chargebacks are solely due to expiration issues, industry reports indicate that the average chargeback rate across e-commerce sectors is 0.60%-1% of total transactions¹. For a business with $1 million in annual sales, this translates to a potential loss of $6,000 to $10,000. These figures can escalate rapidly for businesses with high-volume sales of perishable or time-sensitive goods.

The financial impact extends beyond these general chargeback rates. Approximately 5-15% of all invoices are affected by chargeback deductions², and it was found that chargeback can reduce overall revenue by 2-10%². Moreover, it is common for retailers to impose a per-unit fee plus 100% of the product cost for goods that violate their shelf-life compliance requirements.

Acceptable shelf-life standards also vary. While industry best practices often suggest 80-90%, some major retailers have their own standards. For instance, Sephora has a 75% shelf-life compliance requirement³, and Amazon has a 730-day expiration date requirement for certain wellness products⁴.

Retailers often use a tiered penalty system, where repeated violations result in increasingly severe fines or even the loss of selling privileges.

These direct financial losses can substantially reduce profit margins for brands.

Indirect Costs

Expiration-related chargebacks trigger a cascade of indirect consequences. Brands often absorb inventory write-offs for rejected expired products, reducing stock value and incurring disposal costs. For example, a brand with $100,000 worth of expired inventory rejected by a retailer would not only lose the potential revenue from those sales but also incur the cost of disposing of that inventory.

Damage to Reputation and Relationships

Perhaps even more damaging are the long-term implications for retailer relationships and brand reputation. Consistent expiration issues can strain retailer partnerships, potentially leading to reduced orders or canceling the partnership.

Consumers view expired or near-expired goods as a failure in quality and safety. Whether these products are purchased directly or through a retailer, delivering them can lead to negative consequences for the brand.

In direct-to-consumer (DTC) scenarios, this results in negative reviews, decreased loyalty, and a decline in future sales. However, the impact extends to B2B transactions as well. Even when a retailer is the direct customer, if they sell expired or near-expired goods to end consumers, those consumers often blame the original brand that leads to similar negative outcomes.

Online reviews and social media amplify these negative experiences, and this can cause rapid and lasting damage across all sales channels.

Overcoming Expiration Date Management Challenges and Implementing Effective Strategies

Effectively managing expiration dates requires addressing several operational hurdles.

Challenge 1: Inaccurate Data and Disparate Inventory Management

The reliance on manual tracking methods and inaccurate date estimations can be time-consuming and prone to human error, especially when dealing with large inventory volumes and numerous SKUs with lot and batch variations.

Additionally, disparate inventory pools and multiple fulfillment providers pose challenges. Managing expiration dates becomes exceptionally complex when inventory is scattered across various locations and handled by multiple fulfillment providers.

This lack of centralized visibility and standardized processes can lead to shipments of expired or near-expired products.

Strategy 1: OMS and WMS Solutions for Real-Time Control

To address these interconnected challenges, integrated Order Management Systems (OMS) and Warehouse Management Systems (WMS) are essential. Solutions like Stord provide access to these tools. The solution offers accurate and real-time inventory visibility across all locations with the ability to track expiration by SKU, lot, and batch.

These systems streamline the entire process, from receipt to shipping, and integrate with on-floor tools like scan guns to empower pickers and packers with helpful alerts. This integration of the OMS with warehouse operations provides multiple checks and prevents expired inventory from being shipped. This significantly reduces the risk of non-compliant shipments in DTC, B2B or omnichannel operations.

Challenge 2: Inadequate Picking Strategies

Many businesses fail to adapt their picking strategies to the specific requirements of each retailer. While a simple and standard First-In, First-Out (FIFO) approach might seem adequate, it can fall short in ensuring compliance. FIFO assumes that the first inventory received will also be the first to expire, but this isn't always the case. Newer inventory might have an earlier expiration date than older stock.

Retailers often have specific requirements, requiring more sophisticated strategies like First-Expired, First-Out (FEFO) or Last-In, First-Out (LIFO). FEFO prioritizes shipping the inventory with the closest expiration date, which minimizes the risk of inadvertently creating expired goods. LIFO, while less common for expiration management, might be used in specific situations where newer inventory has a longer shelf life or when dealing with retailers specific  shelf-life regulations.

Unfortunately, some providers pick whatever inventory is most readily available, without considering these expiration date factors. This leaves the brand open to unexpected non-compliance and chargebacks.

Strategy 2: FEFO and Automated Shelf-Life Compliance for Optimized Picking

FEFO is a critical inventory management strategy for perishable goods, prioritizing the shipment of products closest to their expiration date. It’s a significant improvement over the simpler FIFO method.

For brands implementing FEFO independently, this requires meticulous warehouse layout optimization, clear and accurate labeling, and comprehensive staff training.

Automation streamlines this process. Automated systems, such as Stord’s OMS and WMS solutions, enable per-SKU, per-channel expiration date minimums and automate pick strategies to ensure retailer compliance.

These systems also offer advanced features like a "catch-all" fallback mechanism. This is particularly useful when brands don't have a precise expiration date for every single SKU. Instead, they can set a maximum duration that any product is allowed to remain in stock before being automatically removed from saleable inventory or prioritized for shipment. This ensures that all products are shipped well before they become non-compliant, or are removed from stock, even without a specific expiration date.

Challenge 3: Complexity of Retailer Requirements

Diverse retailer requirements, including minimum shelf-life percentages, labeling guidelines, packaging rules, and documentation, demand a granular and flexible approach. Many businesses may find these requirements challenging.

Strategy 3: Clear Communication with Retailers

To simplify the complexity of retailer requirements, proactive communication is essential. Brands must clearly understand each retailer’s requirements or have a fulfillment provider that does. Building strong relationships through regular communication, shared documentation, and collaborative problem-solving minimizes misunderstandings and chargeback risks. This ensures compliance with various retailer requirements. A modern fulfillment provider should have working experience with all major retailers and be able to easily adapt their pack-out processes to adhere to any specific requirements set by the retailer or by the brand. 

Protect Your Business from Expiration-Related Chargebacks

Expiration-related chargebacks represent a significant financial burden for brands. Preventative inventory management is crucial to address these concerns. This requires a combination of technology and skilled execution. It includes advanced OMS and WMS systems with smart alerts to prevent mispicks, and clear communication and collaboration among brands, retailers, fulfillment providers, and front-line associates.

By fostering effective communication and leveraging technology-driven solutions that provide real-time inventory visibility and streamline shelf-life tracking, your brand can prevent chargebacks, optimize your supply chain, and protect your reputation.