Financial: Analysis: Returns confuse the Christmas message
(Guardian (UK) Via Acquire Media NewsEdge) Retailers enjoying a boost from rising online sales in December may suffer a hit in January as shoppers return unwanted goods.
Up to 40% of clothing and between 5% and 10% of electrical goods and homewares bought via the internet or catalogues are returned to stores by shoppers who change their mind.
Simon Irwin, an analyst at Credit Suisse, says: "Product returns no doubt have a small part to play in why December has been consistently stronger for retailers relative to the months after it."
This boomerang effect has always been an issue for specialists such as N Brown, Shop Direct, which owns the Littlewoods brand, and Next, which has a long history of home shopping.
Next tackles the problem by reporting its online sales excluding an anticipated level of returns. It also makes a profit provision for the impact.
But as online sales become increasingly important to high street chains, the likes of John Lewis, Marks & Spencer and Debenhams may see their Christmas trading figures artificially inflate only for new year sales figures to be depressed as goods are returned. John Lewis, for example, has seen its rate of returns rise from 10% to 12% over the past three years as online sales have risen strongly to account for a quarter of its total business. The department store only subtracts the value of returned goods from its sales figures once they have been brought back, so the value of many returned goods bought in the all-important Christmas period is unlikely to be subtracted from the sales figures until January. It does, however, make a profit provision based on the expected level of returns in any period.
John Lewis sells a lot of technology products, so its level of returns is relatively low; the impact on fashion retailers is likely to be greater.
Clothing, where sizing varies from brand to brand and colours can be hard to view online, has the highest level of returns. To make matters worse for the seller, many shoppers choose to order a variety of size and colour options to try on at home and will return all but one. Typically, clothing retailers see return rates of just over 30%, according to analysts at Javelin Group, the e-retail consultancy, but at Christmas and winter sale time this can be higher.
One fashion retailer said that, unless retailers clarify how they are accounting for returns, it can be very difficult to judge their true performance. The issue is exaggerated over the festive season because of the high level of sales and because many stores extend the time period in which customers are allowed to return goods.
However, John Stevenson, a retail analyst at Peel Hunt, said returns do not change the fact that online sales are growing far faster than the high street, and returns do not, in fact, make a big impact on sales. "I would be amazed if we get to the year end and find out there has been an issue with returns," he said.
Retail experts say returns are only part of a bigger issue: the increasing complexity of calculating the profitability of different retail channels including the internet, high street stores and mobile phones.
Many retailers now allow shoppers to return goods bought online direct to stores, for example, where they aim to sell them an alternative. That can work out more profitably for the retailer because the item can go straight back on the shelf. But if the item returned is damaged or needs repackaging, it may need to be sent back to the retailer's warehouse, adding more cost. That kind of complexity makes it tricky for retailers to decide how many stores they really need - their real concern in 2013 and beyond.
(c) 2013 Guardian Newspapers Limited.
[ Back To Technology News's Homepage ]