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.