It's not uncommon for consumers to load up on goods during the holiday season and return a large chunk of their purchases after the fact. In fact, holiday returns are something retailers know to anticipate.
But this year, those returns might cost retailers a lot more -- upward of 50% more than they cost last year. The reason? The ongoing supply chain crunch combined with a tough labor market.
Because it's costing more money to transport goods these days, retailers will spend extra to have holiday purchases returned and moved to stores and warehouses. And because labor is tight, retailers may have to pay a premium for distribution center workers and store employees alike to restock shelves.
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Meanwhile, returns processor Optoro says that two out of three shoppers will likely return at least one gift purchased or received during the 2021 holidays. All told, a whopping $120 billion in goods could get returned by the time January comes to a close, leaving retailers to grapple with the exorbitant costs involved.
Retailers can't afford another hit
Though holiday returns are nothing new, and retailers commonly account for them when running their numbers, the reality is that right now, many retailers are still operating in recovery mode. The pandemic dealt a huge blow to retailers early on when nonessential stores were forced to shutter 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, the fear now is that retailers won't manage to sustain high enough levels of revenue in an age of rising procurement costs.
Though some reports indicate that the supply chain bottlenecks we saw during the latter part of 2021 are starting to ease, things are far from back to normal. And labor is still unquestionably difficult to come by, so much so that retailers may be spending more money than ever to staff stores. There's also a massive truck driver shortage happening across the country, and that's certainly not helping matters -- because while goods may be coming in faster from overseas, that doesn't help if they can't be moved from place to place.
Bad news for real estate investors
If the high cost of holiday returns eats into retailers' profits to an extreme, it could lead to a string of unwanted consequences for real estate investors -- namely, widespread store closures. As it is, malls and shopping centers have been losing tenants for years as consumers have increasingly taken to buying goods online. But at this point, mall and shopping center operators can't afford more vacancies, especially in the wake of the many closures that ensued in 2020.
The good news is that the economy is currently in good shape, and consumers have more money to spend at retailers than they did earlier on in the pandemic, when unemployment was rampant. But that may not be enough to compensate for the fact that it's costing retailers a lot more to stock inventory and take back inventory once consumers decide they don't want it.
