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Take that Back! Returns are Big for the Holidays

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Adam Berry, Getty Images

Ah, the warm feelings of the holidays: Comfort and joy. Good cheer.

And buyer’s remorse. People who rushed to snag discounts on TVs, toys and other gifts are quickly returning them for much-needed cash. The shopping season started out strong for stores, but it looks like the spending binge has given way to a holiday hangover.

Return rates spiked when the Great Recession struck and have stayed high. For every dollar stores take in this holiday season, they’ll have to give back 9.9 cents in returns, up from 9.8 last year. In better economic times, it’s about 7 cents.

This time of year, fractions of a penny add up. Stores are expected to take in $453 billion during this year’s winter holidays. Merchants make up to 40 percent of their yearly sales in the last two months.

Returns are typically more associated with January than December. After all, that hot pink sweater with yellow stars on the sleeves may not be exactly what your sister had in mind. But these days, more is going back before it ever gets to Santa’s sack.

“When the bills come in and the money isn’t there, you have to return,” says Jennifer Kersten, 33, of Miami. She spent $300 the day after Thanksgiving on books, movies and clothes for her nephews. Last week she returned half of it.

Some reasons for the many unhappy returns:

– Shoppers are binging on big discounts. Stores are desperate to get people in the door. But the same shoppers who find a “60 percent off” tag too good to resist may realize at home that they busted the budget.

– Stores have made it easier to take things back. Nordstrom is letting online shoppers return items at no extra charge this year. It used to charge $6. Other stores are offering more time to return or rolling out “no questions asked” policies — no tag or receipt required. But that can backfire. “Spurring more returns wasn’t part of the plan,” says Al Sambar, a retail strategist for consulting firm Kurt Salmon.

– Stores are undercutting each other in a tough economy. Wanda Vazquez spent $39.99 at a New York Target on iPad speakers for her 12-year-old daughter, then returned them when she found something similar for $16.99 at Marshalls. Consumer electronics in particular are being returned at a rapid clip. Stores and manufacturers are expected to spend $17 billion reboxing, repairing, restocking and reselling electronics this year, up 21 percent from four years ago.

At half of the 100 electronics manufacturers and stores surveyed by Accenture, a consulting firm, return rates have increased over the past three to five years. Most of the items are returned without flaws.

In an industry where profit margins are thin and competition is brutal, those return rates are unsustainable, says Mitch Cline, managing director of Accenture’s electronics and high-tech group.

Several retailers declined to talk about returns. But if they need any evidence of growing remorse among their shoppers, all they have to do is look at the overstuffed aisles of liquidator warehouses.

Liquidation.com, which buys returned merchandise from big stores like Wal-Mart and auctions it to small businesses and dollar stores, says return rates are 12 to 15 percent, up two percentage points from last year and double the rate in better times.

Its four warehouses across the country are packed with thousands more smartphones, TVs other holiday castaways than a year ago, says Bill Angrick, CEO of the site’s parent company, Liquidity Services.

To get rid of all that extra stuff, the company says it is holding 20 percent more online auctions than it did last year. The company declined to say how many it was holding.

“This is going to be a record year for returns,” Angrick says. “People are still reluctant to spend.” Dave Vehec, senior vice president of GENCO ATC, a liquidator that sells returned merchandise from six of the nation’s top 10 retailers, also says stores are reporting a spike in returns this year.

Americans spent $52.4 billion over the four-day Thanksgiving weekend, the highest total for that period, according to the NRF. But business has fallen. Sales last week were down 1.9 percent from a year ago, according to research firm ShopperTrak.

Stores are already being squeezed by rising costs for materials and labor. Returns make it worse. When you return a sweater, a paid worker has to restock it. Return a computer after just turning it on, and the hard drive has to be scrubbed.

It adds up to lost dollars for stores, which have to eat as much as 12 percent of the cost for returned clothes and 50 percent for returned electronics.

Shoppers, of course, are more concerned with their own bottom line.

That’s why Lisa Dublin, a New York mother of three, last weekend returned half of the $200 she spent at Banana Republic. The clothes were going to be gifts for her 15-year-old son. Dublin, 33, also returned a pair of knee high-boots that she bought as a gift for herself at Charlotte Russe, a women’s store.

She got them for $25, marked down from $40. It was a good deal, she says, but it wasn’t good enough.

“I have been buying a bunch of stuff at a time,” Dublin says. “Then, when I get home I analyze and figure out what I really need.”

(Copyright 2011 by The Associated Press. All Rights Reserved.)

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