Post Holiday Gift Returns Could Deal Another Blow to Retailers (1/6)
Jan 6, 2009 11:53 AM
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, or 10 percent, from retailers’ projected $470 billion in holiday sales, estimate researchers for the National Retail Federation (NRF), a Washington, D.C.-based retail association. Last month the NRF issued a report citing retailers’ plans to be more lenient with their return policies for holiday purchases to enhance customer service. New policies included lengthening the amount of time an item is eligible for return or accepting merchandise returned without a receipt.
In addition, more shoppers in the survey said they planned to include gift receipts with presents than in past years. That seems to be coming to fruition already. The volume of returns in the first three days following Christmas was up 50 percent compared to the same period in 2007, says C. Britt Beemer, CEO of America’s Research Group, 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, because time is not a retailer’s friend. For a retailer, it potentially means millions of dollars coming back through their 50 or 100 or 200 stores.”
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. In fact, this holiday season will prove to be a make-or-break time for many U.S. retailers, according to Howard Davidowitz, chairman with Davidowitz & Associates, Inc., a New York City-based retail consulting and investment banking firm. Retail experts, including Davidowitz, expect a significant uptick in store closings and bankruptcies in the first quarter of 2009 as a number of chains will likely end the year in the red.
With retail sales already weak, both Beemer and Weintraub insist retailers have not significantly loosened their return policies; however, they do anticipate an uptick in the number of returns. But the 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. The store normally has a 30-day return policy. The Jan. 24 timeline does not cover digital cameras, camcorders, GPS devices, and laptop and desktop computers.
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