Amid a dismal holiday sales season, rife with low shopper traffic and huge markdowns, U.S. retailers might suffer another hit to bottom lines as stretched consumers take advantage of lenient return policies to trade in holiday gifts for cash.
The returns could subtract $47 billion, more than 10 percent, from retailers' $447.5 billion in holiday sales, estimate researchers for theRetail Federation (NRF), a Washington, D.C.-based retail association. NRF's Return Fraud Survey, released Nov. 13, found 52 percent of retailers planned to make it easier to return items this past holiday season compared to their year-round policies. In 2007, only 35 percent of retailers NRF surveyed indicated they planned to do so. Electronics seller Best Buy, for example, announced in mid-December that it would continue to accept returns on purchases made between Nov. 1 and Dec. 24 until Jan. 24 rather than for its typical 30 days.
The volume of returns in the first three days following Christmas were up 50 percent compared to the same period in 2007, says C. Britt Beemer, CEO of America'sGroup, a Charleston, S.C.-based consumer behavior research firm.
“Imagine that a retailer sells a scarf to Aunt Lucy [during the holiday shopping season] and she pays $21 for that scarf, which had an original price of $60,” says Emanuel Weintraub, president of Emanuel Weintraub Associates, an Englewood Cliffs, N.J.-based retail consulting firm. “Aunt Lucy's nephew, who never wore scarves, comes back to the store and says, ‘I want cash.’ The retailer now has to enter that product into inventory and it's worth less today than it was two weeks ago.”
Weaker chains might not be able to afford lenient return policies because they already have too little cash on hand to satisfy their lenders, adds Weintraub. America's Research Group estimates more than 29 percent of consumers will make merchandise returns this year, compared to the five-year average of approximately 20 percent. The anticipated rise in returns comes in the wake of an already weak holiday sales season. Same-store sales fell 2.7 percent in November and 1.7 percent in December.