According to the National Retail Federation about 10% of holiday purchases are returned. Most of those returns are brought back to brick-and-mortar stores – even if purchased online.
What’s important about this is that it gives retailers an opportunity to sell more merchandise to help offset the cost of returns and clear shelves of existing inventory.
That All Important Second Wind
Craig Johnson, president of Customer Growth Partners says the week between Christmas and new year’s will account for as much as 14% of holiday sales this year. This is about the same as the percentage that occurred last year.
Because returns and gift cards will bring more customers into retail outlets, some chains like Abercrombie & Fitch Co.’s (NYSE:ANFB) Hollister chain and Neiman Marcus Group Inc. plan to bring in spring goods ahead of the season so they can tempt customers with new merchandise.
About one-third of J.C. Penney Co. Inc. (NYSE:JCPC) customers who make a post-Christmas return spend an additional $60 according to the company. Kohl’s Corp. (NYSE:KSSB) says about half its customers make at least one additional purchase when returning an item to a store.
There is a flipside to the additional sales. Factored into the additional sales has to be the cost of returns, depending on the retailer. While the average of all returns amounts to 10%, that’s not an across the board figure.
Online sales can generate return rates of as much as 30%. Clothing returns can be closer to 40%. Altogether, according to the NRF, last year Americans returns $260 billion in merchandise to retailers. Since less than half of returned goods are re-sold at full price, retailers can lose a Significant chunk of revenue during the holiday period according to Gartner Research.
Retailers do their best to recoup losses from returns. One company, Best Buy Co. Inc. (NYSE:BBYC) began to focus 3 years ago has increased the number of “open-box” products on its website. This means a TV returned to a store in Nebraska can now be re-sold to a shopper in Ohio on Bestbuy.com.
Some third party handlers claim to use technology to make re-selling returns more efficient and more profitable. One such company, Optoro, says it can increase the return retailers get on returned merchandise from 15 to 30 cents on the dollar to double or triple that rate.
The UPS/FedEx Connection
Optoro picked up a big league investor when United Parcel Service Inc. (NYSE:UPSC) joined several other investors in a $30 million series D funding round. In total Optoro has raised $119.2 million in 5 rounds of funding. Customers include The Home Depot Inc. (NYSE:HDC), Target Corp. (NYSE:TGTB), Best Buy and Jet.com.