US retail: many unhappy returns
Total gift returns for 2019 could reach $95bn, hitting sales figures and profit margins
Shopping in the digital age encourages indiscriminate behaviour. For example, why not order the same pair of jeans in three different sizes and return the ones that don’t fit. The clothes are on sale and shipping and returns are free. There is even a word for it: “bracketing”.
But one person’s impulse buy — or poor gift choice — is another’s multibillion-dollar headache. Record US online spending this holiday season has dominated headlines. US retail sales during the crucial period between November 1 and Christmas Eve rose 3.4 per cent from the same period a year ago, according to Mastercard. The ugly flipside is the shedload of returns that couriers decant back into warehouses, shredding sales figures and profit margins.
Americans returned 11 per cent of purchases in 2018, according to the National Retail Federation. Based on annual retail sales of $3.66tn, that works out to $403bn. Total holiday returns for 2019 could reach $95bn, according to B-Stock Solutions, which helps retailers run liquidation sales. That would represent a one-fifth rise over the same period in 2018.
Retail margins are already being eroded by the battle for customers using free shipping. Footing the growing bill for processing the barrage of unwanted, used or damaged goods ordered online only compounds the industry’s pain.
To see by how much, take a look at online fashion group Revolve. Its IPO prospectus from earlier this May revealed that the digital clothing seller made $400m in net sales in 2017. However, the value of its returned goods was an impressive $385m. That provides one reason why its share price has lost almost half its value since the company listed in June.
To cut return costs, Amazon has reportedly taken to banning customers who send back purchases too often. The tech giant can afford to ruffle some feathers. It made $10bn in profits on $233bn of sales last year. Retailers like Walmart and Target, which have higher margins, also have room to absorb shipping and return costs. It is the middle and lower tier retailers such as Gap and Macy’s that find it harder to shell out $7 for shipping on a $20 hoodie, only to see the garment returned.
Retailers are investing in technology and hiring third parties like B-Stock to help speed up resales. They need all the help they can get. This year, 77 per cent of consumers plan to return some of their gifts and nearly a fifth expect to return more than half, according to a survey by Oracle. That is a lot of tacky Christmas sweaters.