It’s not uncommon for consumers to stock up on goods during the holiday season and return a large proportion of their purchases afterwards. In fact, holiday returns are something retailers have to reckon with.
But this year, those returns could cost retailers a lot more — more than 50% more than last year. The reason? The ongoing crisis in the supply chain combined with a difficult job market.
With goods costing more money to transport these days, retailers are spending more to return and take Christmas shopping to stores and warehouses. And because labor is tight, retailers may have to pay extra for distribution center staff and store associates to restock shelves.
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Meanwhile, returns processor Optoro says two in three shoppers are likely to return at least one gift they bought or received during the 2021 holidays. All in all, $120 billion worth of merchandise could be returned by the end of January, leaving retailers to cope with the exorbitant costs involved.
Retailers can’t afford another hit
Although holiday returns are nothing new and retailers take them into account when calculating their numbers, the reality is that many retailers are currently still operating in recovery mode. The pandemic dealt an early blow to retailers, as non-essential stores were forced to close to in-person customers.
In the course of 2020 alone, dozens of well-known names filed for bankruptcy. And while things have improved in that regard since then, there are now fears that retailers will fail to maintain high enough levels of sales at a time when procurement costs are rising.
Although some reports suggest that the supply chain bottlenecks we saw in late 2021 are beginning to ease, things are far from back to normal. And it’s undoubtedly still difficult to find workers, so much so that retailers may be spending more money than ever to staff stores. There’s also a massive shortage of truck drivers across the country, and that certainly doesn’t help – because while goods may come faster from overseas, that doesn’t help if they can’t be transported from place to place.
Bad news for real estate investors
If the high cost of holiday returns takes an extreme toll on retailers’ profits, it could lead to a number of undesirable consequences for real estate investors — namely, widespread store closures. In any case, malls and shopping centers have been losing tenants for years as consumers increasingly switch to buying goods online. However, mall and shopping center operators cannot afford more vacancies at the moment, especially after the many closures in 2020.
The good news is that the economy is in good shape right now and consumers are able to spend more in retail than at the start of the pandemic when unemployment was rife. But that may not be enough to offset the fact that it costs retailers a lot more to hold inventory and take back inventory when consumers decide they don’t want it.
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