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And Now The Hangover: Retailers Face Record Returns Of Holiday Gifts

Tyler Durden's picture




 

We have heard more than enough about both the "resiliency" of holiday spending and the resurgence of the US consumer as shopping supposedly surprised in the past several months (on nothing else than as Bridgewater's Prince indicated was merely the exhaustion of consumer savings). Now we get the confirmation that this was nothing but a prelude to a tsunami of retail returns as "shoppers" push to complete the other side of the transaction, whereby retailers part with the just received cash, leaving them with even greater inventories, and even thinner margins. As Reuters reports, "With a Christmas season that has seen record e-commerce sales coming to a close, returns should hit an all-time high on Tuesday for United Parcel Service." It is only fair that one record nets off another record. And with it goes away the myth that US consumers had found some mysterious and mystical money growing tree. Until Ben boards Commanche One and starts jettisoning the money sacks, this simply won't happen.

Further from Reuters:

[UPS] expects to handle more than 550,000 returns on Tuesday, a record, and up almost 8 percent from a year earlier. Several other days during the first week of 2012 will also top half a million returns, UPS said.

 

"This will definitely be the busiest year for returns," Ken Burkeen, marketing director of the retail and consumer products division at UPS, told Reuters.  

 

UPS is seeing a "surge" in returns of electronic devices, Burkeen told Reuters.

 

The good news for retailers is that most of the jump is simply a reflection of the explosive growth in e-commerce this Christmas season: U.S. online sales were up 15 percent between November 1 and December 26, according to data firm comScore.

 

Burkeen said UPS expects returns to rise 7.7 percent, meaning returns as a percentage of total sales have actually dipped despite more customer-friendly return policies.

The double whammy for retailers is that returns end up sapping gross margins even more, thus pushing their EPS even further into the red.

It's expensive for retailers to take back products they have already sold, check they are still in good condition, repackage them and integrate them back into inventory for resale.

 

Kurt Salmon retail strategist Al Sambar said that the returned items often end up in the discount bin, meaning a further danger to margins during a holiday season that has already seen steep discounting.

And for those wondering why Amazon has been collapsing lately, wonder no more:

When consumers buy electronics online, they do not get a chance to try out the devices first. So often, after the products arrive, "they play around with the product and decide they would like to return it for another product," he said.

 

Consulting firm Accenture last month estimated that returns would cost U.S. electronics stores and makers $17 billion this year.

 

Several top electronics retailers, including Amazon.com (AMZN.O), Best Buy Co (BBY.N) and Apple Inc (AAPL.O), have extended their normal return windows to accommodate the large number of people who will need to initiate returns or refunds over the next few weeks, according to STELLAService, which rates the customer service of the largest retail websites.

 

Categories with the highest percentage of returns will also include apparel and footwear.

 

Such items are not easy to purchase online because they need to fit properly and require being tried on before consumers commit fully.

We can't wait for the Comcast commedy-financial channel to completely ignore this final piece in the retail sales narrative, after having advertized over and over the "record" sales in the past month to push Joe Sixpack even more into debt, because apparently everyone else is doing it. As it turns out, they aren't.

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Tue, 01/03/2012 - 09:52 | 2028359 Temporalist
Temporalist's picture

This is why so many stores have revolving doors...

Tue, 01/03/2012 - 09:59 | 2028385 Azannoth
Azannoth's picture

Hey it's the Thought that counts right? As in 'I was thinking of buying you this super fancy but totally useless Gizmo for a small fortune but than my CC got declined'

Tue, 01/03/2012 - 10:19 | 2028454 JPM Hater001
JPM Hater001's picture

This is precisly why I finally told my Mother-In-Law to stop giving me money for my birthday.  Your not giving me anything I dont already have plenty of or even want.  Give it to a charity in my name, but enough propping up the consumerism.  I did not participate other than my children.

Because when you get right down to it, your really only giving someone a symbol of claim on your future effort.  Because your present effort is paying off last Christmas.

Tue, 01/03/2012 - 10:22 | 2028467 Oh regional Indian
Oh regional Indian's picture

Actually, this return if not happy with your crap also started life off as a way to rip people off. The statistics show that many people (like me), if un-happy, will either dump the thing or donate it away.

When the going was good, the returns did not count. If you held customer cash for 30 days, you made more than your wafer thin margin anyways.

Nwo all that is changing (scary how Now always comes out as Nwo)...

We are watching the death of arbit-rage. Arbitrary Rage! ;-)

ori

/2012-the-year-of-anomaly/

Tue, 01/03/2012 - 09:53 | 2028365 Irish66
Irish66's picture

If I could just get cash when I return my gift cards, I'd be happy

Tue, 01/03/2012 - 10:01 | 2028399 EscapeKey
EscapeKey's picture

I wonder when the BLS will start adding gift cards to GDP. As in once when they're sold, once when they're cashed in.

They seem to like double counting (imputations, I'm looking at you).

Tue, 01/03/2012 - 10:06 | 2028415 Irish66
Irish66's picture

There was an acrticle sometime in the last week, that had total dollars in gift cards not cashed in.  It was a very large number, can't recall exact amount.

Tue, 01/03/2012 - 10:10 | 2028428 GMadScientist
GMadScientist's picture

That's the scam alright.

Fight back: sell em online!

Tue, 01/03/2012 - 10:04 | 2028406 brew
brew's picture

i didn't need the navy blazer with the fine hand ticking anyway...

Tue, 01/03/2012 - 09:55 | 2028371 Sandmann
Sandmann's picture

"B"-Grade items are simply great ! Buy some item with cosmetic damage to the packaging and save a fortune.

Tue, 01/03/2012 - 09:55 | 2028373 kralizec
kralizec's picture

Michelle Obama gained a few pounds over the holidays and had to return all the outfits she got.  It was OPM anyway, right, no biggie!

/

Tue, 01/03/2012 - 10:12 | 2028434 francis_sawyer
francis_sawyer's picture

after "moomoo"... the next size up is "tent"

Tue, 01/03/2012 - 09:55 | 2028379 MFL8240
MFL8240's picture

I dont even believe that sales were good, regardless of the return issue  In fact, I do not believe any reports we are given, they are lies and games to fake the people out.

Tue, 01/03/2012 - 10:23 | 2028471 Oh regional Indian
Oh regional Indian's picture

That is why they are called NUMBers.

ori

Tue, 01/03/2012 - 09:57 | 2028384 Cdad
Cdad's picture

Returns...yipee!  I'm waiting for my own postage paid return box to arrive...for my sattelite dish and DVR.  Know more financial comedy network for Cdad.  

Tue, 01/03/2012 - 10:08 | 2028425 GeneMarchbanks
GeneMarchbanks's picture

+1

Let me be the first here to congratulate you on a decision that you have yet to understand the significance of. I certainly won't promise you greater returns or anything of that sort but some things have no price.

Tue, 01/03/2012 - 10:09 | 2028426 Floordawg
Floordawg's picture

Congratulations Cdad! We boxed our DVR up last night, sending it back today.

Tue, 01/03/2012 - 10:31 | 2028499 tarsubil
tarsubil's picture

They made you return the dish? Man, that is pathetic. Be sure to stay on top of that one. DirecTV "forgot" to send me my return box and I had to call them to get them to. Otherwise, I would have paid 100s in fees. Canceling directv was very similar to canceling AOL many years ago.

Tue, 01/03/2012 - 10:54 | 2028571 wisefool
wisefool's picture

You wont miss it Cdad. And if you do, you can get get clips and streams over the internet. But having the dedicated circuit for that stuff was to much for me too.

Tue, 01/03/2012 - 11:00 | 2028589 Tortfeasor
Tortfeasor's picture

Well done Cdad!  The bonnie lass and I haven't had cable access for 5 months now, and I've never been so productive, or happy.  Helped the marriage too.

Tue, 01/03/2012 - 09:57 | 2028387 EscapeKey
EscapeKey's picture

We can't wait for the Comcast commedy-financial channel to completely ignore this final piece in the retail sales narrative,

They'll push it as great news; UPS revenue surging on an increase in xmas-related parcel shippings.

Tue, 01/03/2012 - 10:02 | 2028400 Cdad
Cdad's picture

Correct.  And they will tell this story with a straight face...and great excitement...because that is what the teleprompter says to say and do.  

I cannot believe that I followed this network for as long as I did.  However, this morning I am finding that Bloomberg appears to be no different.

Tue, 01/03/2012 - 10:34 | 2028516 Temporalist
Temporalist's picture

"Consumers purchase much more gas when driving to malls to make returns, Economy Surging" - CNBS headline

Tue, 01/03/2012 - 10:40 | 2028528 fuu
fuu's picture

TV is evil and will rot your brain.

Tue, 01/03/2012 - 10:50 | 2028559 Cdad
Cdad's picture

Already this morning on Bloomberg:  "global growth" and "cash on the sidelines."

Just pathetic.  The mysterium continues...just with different call letters.

**oh, and I've heard "investors" about a half dozen time.  What investors?**

Tue, 01/03/2012 - 11:15 | 2028646 wisefool
wisefool's picture

I did the same thing you did 8 months ago. dropped cable (could not afford it) and in the process lost cnbc but found the bloomberg feed.

One thing I will tell you is that they may be just as scripted. But the egos on, and off camera are signfigantly toned down, so IMO you will see cracks and or 4th wall tongue in cheek when they know they are streching the truth.

In other words, you never hear the "You have no Idea" kramer rant. Nobody on BB could or would do it.

Tue, 01/03/2012 - 11:21 | 2028662 VisualCSharp
VisualCSharp's picture

Their entire world is based on faulty assumptions, memes and magical thinking.

Tue, 01/03/2012 - 10:14 | 2028442 GMadScientist
GMadScientist's picture

They'll count the people standing the return line as "visitors".

Tue, 01/03/2012 - 09:58 | 2028389 Jason T
Jason T's picture

Wife and I returned a $300 kitchenaide mixer.. we have a VitaMix and small electric blender.. didn't need this kitchenaide mixer.  didn't need just about everything we got..  

Tue, 01/03/2012 - 10:39 | 2028524 pods
pods's picture

Vitamix is, hands down, my most used kitchen item.  Half pound of spinach for breakfast every morning!

pods

Tue, 01/03/2012 - 10:01 | 2028398 doomandbloom
doomandbloom's picture

*hic*, bitchez

Tue, 01/03/2012 - 10:07 | 2028402 francis_sawyer
francis_sawyer's picture

"mystical money growing tree"

Actually, there is one... It's called DEBT (& if the sheep aren't around anymore to water & prune it, the Bernank is hovering over it with a water cannon)...

Anyway... I got a bottle of Jack Daniels & a bottle of champagne... They ain't going back...

Tue, 01/03/2012 - 10:05 | 2028412 SheepDog-One
SheepDog-One's picture

Gee only +200 on the DOW? Why didnt they just prop it to 14,000 to start the glorious new year of miracles?

Tue, 01/03/2012 - 10:10 | 2028427 francis_sawyer
francis_sawyer's picture

The 200 point surge is the "gravitational pull" effect of planet Nibiru... When it passes around the sun it'll get pulled in the other direction...

Oh... & in case it doesn't (& crashes into the Earth instead), Paul Krugman will have a party...

Tue, 01/03/2012 - 11:02 | 2028593 Tortfeasor
Tortfeasor's picture

QE3 pre-announced to the TBTF?

Tue, 01/03/2012 - 10:07 | 2028416 yogibear
yogibear's picture

I have too much Chinese junk. I  told my wife to return it for something useful, like money to pay the bills. Already saturated with stuff.

Tue, 01/03/2012 - 10:16 | 2028447 spanish inquisition
spanish inquisition's picture

I would say retail is lucky and this is bullish to start the new year. If you spent the 4Q selling at negative margins, people returning merchandise are actually giving you a boost!

Of course, they would need to accept returns for the entire year, send the products back to China, while rehypothicating the difference in London. Complicated, but good for 200 on the Dow and morale!

Tue, 01/03/2012 - 10:18 | 2028450 EscapeKey
EscapeKey's picture

More like, they now have an inventory problem, and might have to discount items even further...

Tue, 01/03/2012 - 10:20 | 2028461 Cdad
Cdad's picture

Mark it...UA is your short on this issue.  Their inventory has been out of control to the upside for more than a year.  The company needs to be split up, its retail outlets on one side, and its Outlet stores on the other.  Sell the first, buy the second.  Or just sell the ticker next week.

Tue, 01/03/2012 - 10:22 | 2028466 GMadScientist
GMadScientist's picture

Or arrange for suspicious conflagrations to Krugman (it's a verb now) their premiums back to them.

 

Tue, 01/03/2012 - 10:32 | 2028496 EscapeKey
EscapeKey's picture

Krugman? I stopped listening to that idiot when he first said we needed $10tn in quantitative easing, kick off massive quantities of roads to nowhere (aka "public works"), and then started talking about not taking on excessive debts.

An additional 66% of debt/(manipulated)GDP isn't excessive, apparently.

Tue, 01/03/2012 - 10:54 | 2028570 francis_sawyer
francis_sawyer's picture

Your statement implies that there must have been a point in which you "started" listening to him... Which is worrying...

Tue, 01/03/2012 - 11:03 | 2028597 EscapeKey
EscapeKey's picture

Almost impossible not to, as he's quoted continuously by establishment media.

Of course, when he's wrong, it's casually brushed in under the carpet.

Tue, 01/03/2012 - 11:10 | 2028621 francis_sawyer
francis_sawyer's picture

Lotta dust under that carpet

Tue, 01/03/2012 - 10:21 | 2028462 GMadScientist
GMadScientist's picture

In Soviet America, product buys you!

Tue, 01/03/2012 - 10:36 | 2028519 Quinvarius
Quinvarius's picture

I won't pretend to undersatnd that.  That is why I expect to see it on CNBC soon.

Tue, 01/03/2012 - 11:00 | 2028586 GMadScientist
GMadScientist's picture

Consider how much companies pay for spam, google ads, monetized clicks, and eyeballs.

 

 

Tue, 01/03/2012 - 10:18 | 2028448 GMadScientist
GMadScientist's picture

I'm not returning mine.

The wife got me a safe. :)

Tue, 01/03/2012 - 10:18 | 2028453 Seasmoke
Seasmoke's picture

i took the kids to toys r us yesterday and the 2 return lines were 20 people deep, while the 5 check out lines were 2 people

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