Thursday, November 13, 2008

Retailers feel the pinch of shopping returns

This is from The New York Times:

Shopping at Nordstrom in Miami this month, Maria Kakouris indulged herself with a $200 pair of satin-and-snakeskin pumps. Then came a spasm of buyer’s remorse. “Those shoes — they are still in my car with the receipt,” said Ms. Kakouris, a real estate agent. “I’m thinking, where am I going to wear them?”

In less challenging times, Ms. Kakouris might have hung onto the shoes. But now she is more circumspect. “They’re going right back where they came from,” she said.

In giving up her splurge, Ms. Kakouris joined a steeply rising number of shoppers who, driven by anxiety over jobs and savings, or an immediate need for cash, are marching back to stores with their purchases.

Consumers are expected to return a record $219 billion of merchandise this year, or 8.7 percent of total sales, compared with 7.3 percent in 2007, according to a survey released Thursday by the National Retail Federation.

Expected increase in the value of return merchandise between 2007 and 2008. From The New York Times.

Joseph LaRocca, a vice president of the retailing group, said that returns of the holiday purchases that many stores rely on to lift them into profitability for the year are expected to be especially high. It is one more measure of the calamity that many retailers are facing as consumers snap shut their wallets.

“Consumers are trading down massively; they are out of money, and that’s where returns come in,” said Howard Davidowitz, chairman of Davidowitz & Associates, a retailing consulting and investment banking firm. “When times are terrible, they look for ways to cut back.”

Analysts say that clothing and accessories make up the bulk of goods that shoppers bring back to stores in search of refunds. Unlike toys, housewares or electronics, fashion items tend to be bought on impulse and are subject to a sudden change of heart.

“Fashion is a feel-good purchase that sometimes doesn’t feel so good once you get it home, and that’s what makes it so vulnerable,” said Marshal Cohen, chief industry analyst for the NPD Group, which tracks retail sales.

First to go back may be the items bought during a moment’s splurge that cause instant regrets: the platform pumps that leave the wearer painfully teetering, the jeans that fit like a sausage casing or that garishly patterned cocktail frock that turns one’s skin a shade of puce.

In flusher times, such items may linger unworn at the back of the closet, but not anymore. “Not if it has a dollar sign attached,” said Candace Corlett, a partner in WSL Strategic Retail, a New York consulting firm.

“Returns are the newfound cash, the new savings account,” she added. “Everything you take back, you are presumably putting in your piggy bank.”

Now if the Christmas shopping season is going to be especially bad for retailers, considering all the bad economic news that has been coming out for the past couple of months, then imagine the worst-case scenario of lopping off 8.7 percent of your retail sales for returns on December 26th. That is going to cut into the poor sales numbers that retailers are expecting for this Christmas shopping season. Candace Corlett, from WSL, points out the hand-wringing among retailers, saying "“This year, even if you made your sales, that doesn’t mean those sales are going to hold. It’s another reason for retailers to lose a lot of sleep.” Another executive at an exclusive Midtown fashion store lamented, “People are returning merchandise in droves. They are combing through their closets like never before, finding anything that still has a ticket on it and bringing it back to the store.” This is just another sign of just how bad the U.S. economy is going into a recessionary tailspin.

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