In December UPS anticipated a whopping 26 percent year-over-year surge in the number of returns it would process on January 2, National Returns Day. Those levels would represent the seventh consecutive record number of returns. The surging rate of returns is occurring largely due to strong online growth. Estimates for returns of online purchases range from 15 to over 30 percent, with items such as apparel and footwear at the high end of that range. The return rate for physical stores ranges from three to 10 percent.
UPS touted solutions it provides to manage the return process, including numerous drop-off points and pre-paid labels for consumers. For retailers, UPS offers visibility to anticipate impacts to inventory and the ability to route returns for repair, repackaging or restocking.
Several recent articles detailed the complications involved in mastering reverse logistics or transporting items from buyers back to sellers. These include the fact that:
Some retailers are seeking to offset the cost of online returns by choosing not to provide prepaid mailing labels, requiring a receipt unless an unwanted item is carried to a store and threatening to ban serial returners. The trend overall, however, has been toward less strict return policies that engender goodwill.
Discussion Questions: Do you predict that return rates will continue to climb in the years ahead? Is a high return rate the inevitable cost of doing business online — and worth it? What solutions best mitigate the inherent costs?
Comments from the RetailWire BrainTrust:
Combine free shipping and returns with wildly unpredictable sizes (even for men) and you’ve got a returns issue. The industry has to make some decisions about either standardizing sizes, or coming up with better descriptions beyond customer reviews.
Cathy Hotka, Principal, Cathy Hotka & Associates
Return rates probably are out of control and that is because return policies are too liberal, period.
Bob Amster, Principal, Retail Technology Group
AI and other enabling technologies should help with the reduction of return rates in the future. These may include virtual stylists, applications designed to use body scans to best size products for customers, or chatbots that help with selecting the right size for products. The enabling technologies that use machine learning to help style select can also minimize returns by using data to pinpoint which styles are best for customers. Returns will always be a cost of doing business and will not be eliminated but companies can continue to work to reduce the number of returns with today’s and future technologies.
Shelley E. Kohan, Associate Professor, Fashion Institute of Technology
Return rates will continue to rise as e-commerce takes a greater share of retail channels. We need a multi-pronged approach: from improvements in material science such that ultimate disposal does not cause further environmental harm, to next generation reverse logistics grounded in intelligent automation. The one thing I would caution is not to penalize the shopper, as this will become a competitor’s potential advantage.
Shawn Harris, Customer Partnerships & Strategy, SmartLens, NA
The costs of high return rates are the flipside of the costs of “free” shipping. Customer expectations have gotten higher and higher — driven partly by Amazon — and stores’ efforts to tighten up their return policies are going to meet with resistance. It doesn’t help matters when retailers encourage purchases of multiple colors and sizes as a consumer incentive, knowing that most of these products are going to be returned.
Dick Seesel, Principal, Retailing In Focus LLC
I do wonder how the sustainability trend collides with the returns trend. There is no argument that returns are wasteful and damaging to the environment, especially for online purchased items even when they are returned in-store. Yet the same consumer is looking for sustainably-produced goods and carbon footprint impact information. In the end instant gratification wins out against environmentalism I think for many consumers.
Kenneth Leung, Retail and Customer Experience Expert
We are training consumers to plan to return products. Why should we be surprised when they do what we’ve trained them to do? Ah, how I yearn for the “good old days” when we focused on selling good products to people in well merchandised stores without chasing the shiny baubles which capture headlines so well. Of course that world can’t exist any more. But we should note that serious return problems generally only happened when the product failed to meet expectations. But no, we shouldn’t be training customers to over-order and return.
Doug Garnett, President, Protonik
Headline of the Week
Advance Auto Parts is acquiring Sears’ DieHard brand, known for its car batteries, for $200 million in cash, CNBC has learned. Under a supply agreement, Sears and Kmart owner Transformco will still have the rights to sell some DieHard items in Sears stores, Advance Chief Executive Officer Tom Greco told CNBC in a phone interview. Advance Auto Parts will also give Transformco an “exclusive royalty-free, perpetual license” to develop and market DieHard products in other nonautomotive categories. The deal also provides Sears and Kmart with much-needed cash. The retailers have been trying to turnaround their businesses since filing for bankruptcy in 2018, but they appear to be facing some of the same struggles they had seen before the Chapter 11 filing.
Apparel & Footwear
Toms Shoes creditors have agreed to take over the maker of casual footwear in exchange for restructuring its debt, according to a company letter sent to employees and people familiar with the matter. The group of creditors, led by Jefferies Financial Group, Nexus Capital Management and Brookfield Asset Management, will take over ownership of Toms from its founder Blake Mycoskie and private equity firm Bain Capital, according to the letter. Bain had acquired a 50% stake in Toms five years ago, valuing the company at $625 million, including debt. Mycoskie owned the remainder. It is not yet clear whether Mycoskie will continue to have a role with the company given that he will no longer be an owner. The new owners have agreed to invest $35 million in Toms to show their commitment and support its future growth, according to the letter.
Retail Dive was all set to give Gap Inc.’s plan to spin off Old Navy its “Deal of the Year” Dive Award, in light of the huge implications for both a stand-alone Old Navy business and the remaining “new Gap Inc.” But recent developments have called it into question. While the company says all systems are go, (and as of press time, they were), the plan has been delayed by several weeks, at least. And there’s reason to believe that it ultimately may not go forward after all. So the deal is effectively on hold, given the delay, the skepticism increasingly swirling around it and the fact that Art Peck, widely credited with cooking it up, is no longer leading the company. Still, it’s worth taking a look at what could be a defining development for Gap Inc., whether it goes forward or not.
The director calls action and the merriment unfolds as four young women sip drinks by the pool, cavort on downy beds, muse about their futures and sprint along Hollywood Boulevard in pursuit of a vanished mystery bag. That pretty much sums up the doings in “Hollywood Dreams,” a 12-minute video produced by the Authentic Brands Group, the owners of Frederick’s of Hollywood, and PYPO, an online comedy platform for emerging talent. The video’s stars may not look just like you and me, but they do suggest a hybrid of “Keeping Up With the Kardashians” and an early episode of “Girls.” Billed as an action mini-series, the video represents an effort by Frederick’s, the fabled naughty undie brand, to swim with the tide, joining a roster of lingerie upstarts placing a wholesome reality spin on their marketing campaigns. It hopes, it would seem, to sidestep the pitfalls that have dogged Victoria’s Secret; that company’s aggressively steamy marketing alienated younger consumers and cost the brand a marked dip in sales.
Athletic & Sporting Goods
Thule Group announced the acquisition of Denver Outfitters, a Denver, CO-based maker of roof rack-mounted fly fishing rod vaults. Financial terms of the deal weren’t disclosed. Thule said the acquisition of Denver Outfitters, which had an annual revenue of less than $1 million in 2019, is not expected to have a material impact on Thule’s financial picture. But the acquisition broadens Thule’s expanding portfolio of products focused on an active lifestyle in the adventure camping segment, following the category additions of roof top tents and van awnings for the North American market in recent years.
Fitness equipment maker Dyaco International Inc announced that it is to acquire North American exercise equipment brand Sole Fitness as part of its goal of transforming into an original brand manufacturer. The company’s board of directors approved the 100 percent share purchase of Fitness Equipment Services LLC for US$28 million on top of the net value of its assets and liabilities on the closing date of the deal, Dyaco said in an e-mailed statement, without giving a clear timeframe. Sole Fitness is a major fitness equipment brand in North America targeting the mid-to-high-end home fitness equipment market.
Italian motorsports safety giant OMP Racing announced that it has purchased Bell Racing. Those familiar with karting, the World Rally Championship, World Endurance Championship, and/or Formula One no doubt know the OMP name well. Now, one of the best-known American motorsports safety companies has joined the OMP fold. OMP’s HQ and R&D facility in Ronco Scrivia, Genoa, Italy, as well as OMP America’s Miami, Florida facility will stay the same. Meanwhile, Bell Racing’s R&D and manufacturing facility in Sakhir, Bahrain and Bell Racing’s US facilities in Champaign, Illinois, Speedway, Indiana, and Mooresville, North Carolina will all remain intact, as well.
Cosmetics & Pharmacy
For the past five years, beauty M&A activity has been on fire, and 2019 proved to be no exception. While some of the deals were smaller — there were a lot of $5 million or $10 million raises, a result of smaller funds and venture capitalists moving into the space to provide capital to the influx of brands — beauty M&A continued its historic boom throughout the year. On the large end, there were many billion-dollar moments. At the tail end of the year, International Flavors & Fragrances Inc. inked a $26 billion merger with DuPont’s Nutrition and Biosciences business. Combined, those two business will become a major provider of ingredients to the food and beverage, beauty and supplements industries. The deal is expected to close in early 2021.
China-based natural beauty brand Lu Ming Tang landed minority investment from private family offices. Launched in 2016, Lu Ming Tang was created by French executive Marie Amiand, who has extensive experience in beauty and particularly the Asian market. The brand is based on Chinese tea leaves and their healing and purifying qualities. The brand consists of a 40-unit range that is manufactured in Suzhou, China, and positioned as “affordable luxury” priced from $14 to $93. The brand is distributed in China, South Korea, and Singapore. Lu Ming Tang received a minority investment from the family offices of Susan Rockefeller, Kara Ross, Christophe Cervasel and Sylvie Ganter, and the Guibor fund. Terms of the transaction were not disclosed.
Discounters & Department Stores
Holiday retail sales jumped 3.4% this year according to Mastercard’s most recent report. Economists attribute the gain to high employment, an increase in wages, and positive consumer confidence. But not all retail chains are feeling the holiday cheer. Jerry Storch, former Toys ‘R’ Us CEO and former Hudson’s Bay Company CEO, says department stores are suffering, and that’s because many are using “a century old business model which basically hasn’t changed.”
After two deadly shootings at Walmart stores over the summer, Walmart CEO Doug McMillon made a surprising move. The retailer on Sept. 3 said it would halt sales of ammunition for assault-style rifles and handguns and that it would begin asking shoppers to no longer openly carry firearms in stores in states where “open carry” is allowed. “We’ve also been listening to a lot of people inside and outside our company as we think about the role we can play in helping to make the country safer,” McMillon said earlier this year. “It’s clear to us that the status quo is unacceptable.”
2019 brought with it more retail bankruptcies. And the implications have been more store closures, thousands of lost jobs and a vastly different retail landscape that doesn’t look anything like where your parents used to shop. While some retailers filed for Chapter 11 bankruptcy protection for the first time this year, others went through a so-called Chapter 22 scenario, where it was their second time in bankruptcy court. That included Z Gallerie and Charming Charlie. And some retailers, like discount chain Fred’s, ended up liquidating.
Emerging Consumer Companies
Neighborhood Goods, the retailer focused on selling products from digitally-native brands, opened its second store. The store is in New York City’s Chelsea Market, and follows the first shop, in Plano, Texas, which opened in late 2018. Neighborhood Goods intends to open its third store in Austin, Texas.
Shoptalk and Groceryshop, two of the leading conferences in the the consumer and grocery industries, announced that they have been acquired by Hyve Group for $145 million. Hyve is one of the world’s largest organizers of international exhibitions and conferences. Following the acquisition, the founder s of Shoptalk and Groceryshop, Anil Aggarwal and Simran Rekhi Aggarwal, will be the majority shareholders of Hyve.
Grocery & Restaurants
Blue Point Capital Partners has made a platform investment with the acquisition of Country Pure Foods, Inc. (C.P.F.). Financial terms of the transaction were not disclosed. Based in Akron, Ohio, C.P.F. is a value-added producer, processor, packager and distributor of both branded and private label beverages and juice products. C.P.F. sells its products directly to retailers and through institutional food service distributors into the health care and education markets. Blue Point Capital’s acquisition of C.P.F. was done in partnership with Raymond K. Lee. Mr. Lee was chief executive officer of C.P.F. for more than 20 years before retiring at the end of 2017. Post-closing, Mr. Lee will return as CEO of C.P.F.
Utz Quality Foods, L.L.C. has acquired Kitchen Cooked Inc., a Farmington, Ill.-based manufacturer and distributor of snack foods. Financial terms of the transaction were not disclosed. The acquisition will bring to Utz’s portfolio the Kitchen Cooked line of potato chips, tortilla chips, popcorn, pretzels, pork rinds, Kettle Kurls, Kettle Pops and more. Additionally, the transaction includes the Kitchen Cooked direct store delivery operations and manufacturing operations. Founded in the 1930s, Kitchen Cooked distributes its snacks across central Illinois and eastern Iowa.
The Federal Trade Commission on Dec. 19 filed an administrative complaint challenging St. Louis-based Post Holdings, Inc.’s proposed $110 million acquisition of the private label ready-to-eat cereal business of TreeHouse Foods, Inc., Oak Brook, Ill. According to the F.T.C., Post and TreeHouse are two of only three “significant” manufacturers and distributors of private label R.-T.-E. cereal in the United States. The agency said that, if allowed to go through, the acquisition would “give Post more than a 60% share of an already highly concentrated market and eliminate the vigorous competition between them to serve grocers across the country.” The proposed merger also would remove the competitive pressure that has driven higher quality and lower priced cereals for U.S. consumers, said the F.T.C., which has been reviewing the transaction since July.
Home & Road
New orders for furniture fell in October, down 8% from orders the same month last year, according to the latest Furniture Insights survey of residential furniture manufacturers and distributors from accounting and consulting firm Smith Leonard. October’s numbers followed the up-and-down pattern of recent months, with a 7% increase in September, a 3% decrease in August, a 6% increase in July and a 6% decrease in June. “We have continued to talk with people using the term ‘choppy’ when describing business in the residential furniture industry as it relates to manufacturers and distributors,” said Smith Leonard Partner Ken Smith in the report. “We would note that the High Point Market was one week later than in 2018 with the October 2019 dates very near the end of the month, so that may have some impact on timing of orders.”
It’s only January but spring is in the air at Lowe’s Companies. The home improvement retailer on Thursday announced plans to hire more than 53,000 full-time, part-time and seasonal associates across its more than 1,700 U.S. stores this spring. Lowe’s will roll out hiring events in all store locations during the next three months by region to meet the seasonal spring hiring needs across the country. Lowe’s stores in Florida, Southern California and Hawaii, as well as parts of Arizona, Utah, Nevada, Texas, Alabama and Georgia, where spring weather typically arrives earliest, will host the first walk-in hiring events from 10 a.m. to 7 p.m. on Wednesday, Jan. 8. Candidates may receive on-the-spot offers during this open interview process. Lowe’s will host additional hiring events at stores in the remaining U.S. regions on Jan. 15, Feb. 5, Feb. 19 and March 4. The retailer noted that in 2019, approximately 50% of seasonal hires were converted to permanent associates, and that nearly 200 current store managers started as seasonal associates.
Jewelry & Luxury
Canadian fine jewelry brand Mejuri is on a roll. The direct-to-consumer brand—which pioneered weekly fine jewelry “drops” on its website—secured $23 million in Series B funding in April, after raising $5 million in a Series A round in 2018 (the company had raised $1 million in seed funding prior to that). And now it’s planning for an IPO, says Mejuri cofounder Noura Sakkijha. The third-generation jeweler told news outlet BNN Bloomberg earlier this week that she hopes to take Mejuri public “in the near future.”
Warren Buffett, whose holding company, Berkshire Hathaway, owns three jewelry retailers and one jewelry manufacturer, declined an offer to bid on Tiffany & Co., according to a report in the Financial Times, citing unnamed sources. While LVMH was negotiating to buy Tiffany & Co, the retailer approached the Oracle of Omaha about possibly making a bid. In 2009, Berkshire Hathaway had purchased $250 million of the company’s bonds when its finances were shaky following the 2008 financial crisis. Buffett has long admired the company and previously expressed interest in purchasing it, according to “bankers who have advised him,” the newspaper said.
Tiffany & Co. said that its comps for the 2019 holiday period rose 1%–3%, with a slight increase in the Americas region and strong sales in China. The preliminary sales announcement for the holiday—which was defined as Nov. 1 through Dec. 24—came in an 8-K filed Dec. 26 with the Securities and Exchange Commission. Comps in the Americas region, which includes the United States, rose 2%–4%, while comps shot up an impressive 7%-9% in the Asia-Pacific region. Comps in Europe increased a healthy 4%–6%, while they plummeted 11%–13% in Japan.
Blue Nile plans to open 50–100 brick-and-mortar webrooms in the next five years, the e-tailer’s chief executive officer Sean Kell told the Puget Sound Business Journal. This would mean doubling the company’s currently workforce from 500 to 1,000, he added. “For a product like this, it’s expensive,” he told the publication. “A lot of people love to see, feel, and touch the product.” The publication also reported that Dave Fleischman, who formerly served as Blue Nile’s chief product officer, was named its chief growth officer in September.
Office & Leisure
Newell Brands Inc. announced that it has completed the sale of The United States Playing Card Company (“USPC”) to Cartamundi Group. USPC, based in Erlanger, KY is the leader in the production and distribution of premier brands of playing cards, including BICYCLE®, BEE®, AVIATOR®, HOYLE®, and FOURNIER®. This transaction marks the conclusion of the Accelerated Transformation Plan that the company had initiated in January 2018. Newell Brands is a leading global consumer goods company with a strong portfolio of well-known brands, including Paper Mate®, Sharpie®, Dymo®, EXPO®, Parker®, Elmer’s®, Coleman®, Marmot®, Oster®, Sunbeam®, FoodSaver®, Mr. Coffee®, Rubbermaid Commercial Products®, Graco®, Baby Jogger®, NUK®, Calphalon®, Rubbermaid®, Contigo®, First Alert®, and Yankee Candle®.
The Michaels Companies has named its second CEO in just two months. The nation’s largest arts and crafts retailer named Walmart e-commerce executive Ashley Buchanan as president and chief executive officer. His appointment comes just about two months after Michaels tapped interim CEO Mark Cosby to fill the job. The retailer said that Cosby will continue to serve as CEO during a transition period until April 1, 2020 and will remain a member of the board after he steps down. (Cosby succeeded Chuck Rubin who left in February.) Buchanan, who will join the Michaels’ board effective Jan. 6, most recently served as chief merchandising officer and COO for Walmart U.S. eCommerce.
A US court has dismissed a class action lawsuit brought against Essendant’s former board of directors and Sycamore Partners over allegations of breaches of fiduciary duty. At the end of October 2018, Essendant shareholders filed a class action complaint in a Delaware court alleging the company’s board had failed to obtain the highest reasonable value for the wholesaler by agreeing to be acquired by Staples’ owner Sycamore Partners. The complaint also alleged Sycamore and Staples had aided and abetted the Essendant board in these fiduciary breaches. In April 2019, the defendants moved to dismiss the claims. In his ruling made at the start of this week, Joseph Slights, Vice Chancellor at the Delaware Court of Chancery, sided with the defendants on all counts.
Technology & Internet
United Parcel Service expects to ship 1.9 million gifts and other items back to U.S. retailers as e-commerce fuels an anticipated 26% year-over-year volume surge on “National Returns Day.” Jan. 2 is the busiest day for holiday returns in the United States. U.S. shoppers return more packages than their peers around the globe, spurred by free shipping on orders and returns – costly perks that squeeze retailer profits. About 10% of goods sold in the United States go back to retailers every year, resulting in roughly $369 billion in lost sales, according to a 2018 report from Appriss Retail and National Retail Federation.
Amazon is one of the first retailers out of the gate to report a happy holiday. As always, the e-commerce giant provided no specifics on numbers of shoppers, items ordered or money spent. It described the holiday season as “record-breaking,” with “billions of items” ordered worldwide and “tens of millions” of Amazon Devices purchased worldwide. Amazon reported that more people tried Prime this holiday season than any previous year, with more than 5 million new customers starting Prime free trials or beginning paid memberships worldwide in just one week alone.
Finance & Economy
U.S. consumer confidence dipped slightly in December, according to data released by The Conference Board. The percentage of consumers judging that business conditions are “good” remained virtually unchanged at 38.7%, while those claiming that conditions were “bad” decreased to 11.1% from 13.6%. Perceptions of the labor market were mixed, however, as the percentage of people saying jobs were “plentiful” and the percentage saying jobs were “hard to get” both slightly increased to 47% and 13.1%, respectively.
U.S. employers last month announced the fewest job cuts since July 2018 as the labor market remained tight, though 2019 still turned out to be one of the decade’s worst years for firings. Job cuts totaled 32,843 in December, down 26% from November and 25% lower than a year earlier, according to a report from staffing firm Challenger, Gray & Christmas Inc. The upbeat note caps a year in which the labor market held up despite uncertainty from the trade war and related faltering in the manufacturing sector.