Retail Returns Record January

January is a tricky time for retailers. Sure, people come to stores with gift cards in hand. And they may spring for workout clothes or other items to follow through on New Year's resolutions. But the next two weeks are a big time for returns. Unwanted clothes, appliances, doodads, and gadgets are all getting brought back to stores with requests for some kind of refund instead. And this year is on track to be a record year for returns since we saw record holiday spending.

According to Forbes, Americans are expected to return about 18% of the items they purchased over the holiday shopping season this year, or about $171 billion worth of stuff. The only problem? The retailers don't want it back. Even though retailers never enjoy taking back the tsunami of things that get returned after the holidays, they have reason to be distinctly less excited this year. They worked hard to clear out stores and warehouses bursting with excess inventory. A lot of them turned to huge markdowns to get rid of the stuff, putting a dent in profit margins. Which is why, in an effort to mitigate costs, about 60% of retailers are tightening their return policies, according to goTRG, a company that helps big box stores process returns. Over 41% of retailers are now charging for return shipping, up from 33% last year, and many are also adding restocking fees.

On the upside, another tactic gaining traction is to simply let customers keep items while at the same time issuing a refund. That way retailers never have to see the merchandise again. So-called returnless refunds hit $4.4 billion in 2021, and roughly one-quarter of retailers are now employing the strategy in some way. Which means you might end up getting a full refund while still hanging onto that unwanted gift. Hey, if you try selling it online, you could nearly double your money.

Yet there are signs that shoppers may be running out of gas. Credit card balances have ticked up. Personal saving rates have fallen. And sales of big-ticket items like jewelry and electronics have weakened. Plus, Americans' spending spree during the earlier years of the pandemic, fueled by stimulus money, boredom, and socked-away savings, have made for tough comparisons.

Retailers enter 2023 reckoning with the fact that store traffic already lagged during peak weeks of the holiday season. Across six retailers - Walmart, Target, Best Buy, Nordstrom, Kohl's and Macy’s - foot traffic dropped by an average of 3.22% year over year for the weeks from Black Friday through the week of Christmas, according to data from Placer.ai, an analytics firm that uses anonymized data from mobile devices to estimate overall visits to locations. It also declined by nearly 5% when compared to pre-pandemic patterns.

Now retailers are more on edge. "It seems like a lot of the brands are anticipating a bigger thud in January," said Stacey Widlitz, president of SW Retail Advisors, a consulting firm. She has noticed more retailers are dangling gift cards to drum up sales. For instance, Urban Outfitters-owned retail chain Anthropologie on Friday offered $50 toward a future purchase for online shoppers who spend $200 or more. But that bonus cash must be used by January 31, when the company's quarter ends. Widlitz said those offers are focused on nudging shoppers to make purchases during a time when there's often a post-holiday lull. It is also retailers' last chance to sell through excess inventory and start the new fiscal year in a cleaner position. "It just looks like they're trying to push people to get into stores after the new year," she said.