March 3, 2024

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Store revenue has become a bigger problem

Store revenue has become a bigger problem

Jennifer Howe is still holding onto the Christmas gifts she doesn’t want. Extra-large slippers, designer perfume you’ll never wear, and candles.

“They look cute,” she said, “but I’ve never been a candle person. I’m thinking about donating some of the things I got, or maybe re-gifting, because giving back is a pain.”

She is not mistaken. Retailers are now making returns more difficult, confusing, and potentially more expensive. What a difference a few years make.

During the pandemic, retailers have stepped back to make returns simple — and seamless — for Americans staying at home. After all, retailers wanted shoppers to keep spending during what was a very uncertain time.

Now due to the healthier retail environment combined with other factors (namely the higher costs of doing business), retailers are cracking down.

People shop during the Black Friday sale in Chicago, Illinois, US, November 25, 2022 (REUTERS/Jim Vondruska)

Indeed, according to goTRGa returns-focused logistics company, 6 out of 10 retailers changed their return policies in the past year alone.

Among the changes: shorter refund and return times, shipping fees, restocking fees, and other surprises, said Chander Shamis, goTRG President and CEO.

Consumers like Nick Mueller are finding out the hard way.

“I recently tried to return an item of clothing from REI, and was surprised to learn there was a $6 fee,” Mueller said.

George Trantas, Director, Global Markets Avalarathe leading provider of cloud-based tax compliance automation for businesses of all sizes.

“The cost of returns can be as low as $30 per item. You’ve got the outbound shipping costs, plus the labor costs, plus the return shipping, plus the labor costs to get the item back on the shelves and then the first price reduction.” “How can retailers recover that original price? They can’t.”

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Shamis agrees.

“The act of recharging an item can take up to 85% of its value,” Shamis said.

Trouble coming back has been brewing for some time, Trantas said, but has now reached a “tipping point”.

DALY CITY, CALIFORNIA - DECEMBER 15: A woman carries shopping bags as she looks into a display window at the Ceramonte Center on December 15, 2022 in Daly City, California.  According to a report by the US Department of Commerce, retail sales fell 0.6% in November as consumers pulled back on spending due to higher prices caused by inflation.  (Photo by Justin Sullivan/Getty Images)

A woman carries shopping bags as she looks at a display window at the Ceramonte Center on December 15, 2022 in Daly City, California. (Photo by Justin Sullivan/Getty Images)

Consider this past holiday season.

On average, retailers expected to return 17.9% of merchandise sold during the holiday shopping season, according to the latest National Retail Federation data. This is up from 16.6% in 2021 and amounts to about $171 billion.

Fewer companies are in a position to afford such a steep price.

Online returns are the most problematic, Shamis said.

“That’s where the challenges lie,” said Shmeis. “The ‘bracketing’ where you buy like five T-shirts, keep one, and send the rest away, was one of the biggest contributors to these problems.”

Retailers like Zara, H&M, and other chains have had enough. They are now charging up to $7 to return items online. Trantas said other retailers are encouraging consumers to make in-store returns.

“This is part of the solution because driving a customer into the store will increase foot traffic, could lead to a secondary sale, and could increase loyalty,” Trantas said. “Increasing loyalty by just 5% can increase sales by up to 95%.”

More transparency and communication is also needed, Trantas said.

“Retailers need to be very clear about their return policies to eliminate any consumer dissatisfaction or friction,” said Trantas. “The new rule is ‘know the policies.’”

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Personal finance journalist Vera Gibbons is a former writer for SmartMoney magazine and a former correspondent for Kiplinger’s Personal Finance. Vera, who spent more than a decade as an on-air financial analyst at MSNBC, is currently co-host of the weekly non-political news podcast she founded, NoPo. Lives in Palm Beach, Florida.

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