Siddharth Cahale and Arriana McLymore

(Reuters) – The longer returns policies of major U.S. retailers, which were launched in the midst of the pandemic to attract consumers this year, may lead to higher prices if the record-setting $112 million is brought back by shoppers who bought gifts during extended holidays.

With inventories at an all-time low, retailers entered 2021 with a supply chain logjam.

To spread the effects of labor and shipping shortages across more months than traditional peak sales days (November and December), many Christmas promotions were started as early as September.

Shoppers were also attracted by retailers’ “extended return policies”. Saks Fifth Avenue, Apple Inc (NASDAQ) Nike (NYSE:) is among the chain that allows shoppers to return holiday products after 60 and 90 days rather than 30 days as per industry standards.

The lengthy returns process that can involve shipping, cleaning, and repackaging can result in higher retail costs. It can also impact profit margins.

The “returns problem” is unlikely to be solved soon, with global supply-chain problems not likely to improve until at least 2023.

Brian Kilcourse from RSR Research stated that the returns issue will likely be the main focus in the following two years as the associated costs are expected to have a significant impact on earnings.

The U.S. is expected to bring back a record $112billion to $114billion worth of merchandise within the coming weeks. That’s a 24% to 25% increase on 2019 post-holiday returns according to B-Stock Solutions. They manage online liquidation sites for retail retailers such as Walmart (NYSE:) Inc and Costco Wholesale Corp (NASDAQ;). Best Buy Co Inc (NYSE:) .

B-Stock stated that merchandise bought online will likely return between $43 billion to $45 billion.

The National Retail Federation is a trade association that estimates that 10.6% of all goods bought at U.S. retailers were returned by consumers in 2020. The holiday season saw this percentage rise 13.3%, costing retailers $101 million.

Optoro works with manufacturers and retailers to manage returned merchandise and will resell it between Jan. 31 and Thanksgiving.

Even though retailers don’t have to spend more on return windows than they need, the longer timeframes can affect their ability to borrow money for other purposes, says Paula Rosenblum managing partner of RSR Research. It’s an unknown expense.

Retailers don’t normally break down return rates or associated expenses. However, signs indicate that the surge in returns began well before Christmas. Consumers started to shop earlier and this led to increased costs due to the extended grace period.

Craig Grayson vice president, general merchandise management, stated that Staples, an privately held office supplies retailer, saw a 30% increase of drop-offs in the past six weeks.

Boohoo UK, an online retailer of fashion products, stated that UK returns rates in its fourth quarter ended November 30th were already 12.5 percentages higher than those from the previous year. It also noted that they were 7 percentage points higher pre-pandemic. These higher rates, along with the associated logistic costs, led to it reducing its annual margin forecast by two times in four months.

« LIVING IN A RATS’ NEST »

Take a $100 sweater. According to an AlixPartners report, the margin for the sweater at most retailers could reach $33 if it was purchased in-store. However, the retailer’s margin would be $17 if the sweater is ordered online and sent to the customer’s residence.

The retailer will lose $25 if a customer returns the sweater and the sweater isn’t resold. According to the study that examined returns policies at retailers such as Walmart, Amazon.com, Macy’s, Aldi, Kroger, and Kroger (NYSE), the retailer’s margins can rise to $31 when it has to pick up the order from the customer and return it to them.

Rosenblum stated that online shopping has prompted retailers to increase orders in order to accommodate items in transit, or not yet sold in their stores. The problem can be exacerbated by the possibility that all of the excess inventory will also go unsold.

“We are living in a rats’ nest at the moment, and it’s really hard to untangle what’s going to happen,” she said.

Apple CEO Tim Cook said to Reuters that the holiday season would see more disruptions due to persistent shortages software chips. The result was an iPhone maker falling short by $6 billion because of this.

Apple has changed its policy to allow customers to return products within 68 days instead of just 30.

Similarly, Nordstrom Inc (NYSE) Nordstrom Rack extended return policies for many items to 45 days; Nike to 60 Days and Macy’s to Walmart to up to 90 Days.