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Retailers Brace For Hefty Holiday Returns of Oversize Goods

Growing purchases of furniture, appliances and other bulky items are expected to add a new dimension to the annual ritual of returning unwanted holiday purchases. Retailers Brace For Hefty Holiday Returns of Oversize Goods

A flood of online orders for furniture, fire pits and other bulky consumer goods during the coronavirus pandemic is set to add outsize new complications to one of e-commerce’s biggest holiday-season headaches: returning unwanted items.

Retailers are setting up dedicated handling sites and striking deals with specialists in reverse logistics on expectations that an upswing in hefty returns will swell once consumers see their bigger, heavier gifts and purchases in the postholiday light.

Come January, said Erik Caldwell, president of XPO Logistics Inc.’s last-mile business unit in North America, “You’re going to have the mother of all returns seasons for heavy goods.”

About 25% of all e-commerce purchases get returned, according to Forrester Research Inc. Bulky purchases tend to have a lower return rate than more portable items such as apparel, hovering around 10%, industry executives say.

But this year there are far more exercise bikes, lounge chairs and office desks being delivered to homes as people redesign their lives and residences around lockdowns and work-from-home orders aimed at restricting the spread of the coronavirus.

At XPO Logistics, which handles home delivery and returns for customers including fitness-equipment retailer Peloton Interactive Inc. and Whirlpool Corp. , heavy-goods shipments this summer outpaced last year’s holiday volumes. The rate of returns has also increased since the pandemic, from about 10% to “around 11% on much higher volumes,” said Mr. Caldwell.

Cheap and easy returns have become a critical piece of marketing for e-commerce retailers as they try to lure customers. Online clothes shoppers routinely order multiple sizes and colors, shipping rejects back or dropping them off at a nearby store.

Returning a 200-lb. sleeper sofa or a flat-pack desk that’s now fully assembled is more complicated, and more costly.

“It’s not as simple as buying a pair of shoes and putting it back in the box,” said Zach Pollock, chief operating officer of Pilot Freight Services, which arranges transportation of heavy and bulky items for customers including Bed Bath & Beyond Inc., Walmart Inc.’s Sam’s Club and Dick’s Sporting Goods Inc.

“When you’re picking up valuable items that are unpacked, inside people’s homes, it takes time,” Mr. Pollock said. “Getting it back into that factory packaging can be quite a chore.”

Last year delivery giants FedEx Corp. and United Parcel Service Inc. added $24 fees on packages weighing more than 50 pounds and lowered the surcharge threshold from 70 pounds. Both carriers also charge extra for shipments that exceed certain dimensions.

Research group IBISWorld said in February that the domestic online furniture market has been growing at a double-digit rate in recent years and would reach $45.7 billion in 2020. That was before the pandemic sent consumers online in big numbers, however.

As of October, Pilot’s consumer e-commerce volumes were up about 37% this year compared with the same period in 2019, Mr. Pollock said. “More shipments are being returned as a percentage of year-over-year growth” among top-tier accounts at Pilot, he said.

Retailers face extra headaches for returned goods.

Once an unwanted item is packed up and removed from the customer’s home, retailers must assess its condition and decide whether to resell it, liquidate it or send it to a landfill. Rejected goods may end up traveling hundreds of miles back to a warehouse, tacking on considerable transport costs.

Some brands have dedicated last-mile delivery operations where returned goods from one company are consolidated locally and shipped. In other cases, unwanted products flow through terminals that handle freight for dozens of clients.

Some merchants are setting up regional returns centers as higher sales volumes increase the expense of dealing with unwanted items, said David Commiskey, vice president of customer solutions at freight brokerage and logistics firm GlobalTranz, which helps furniture companies and retailers manage home-delivery shipments of oversize items and also advises them on returns policies.

“You have to understand their network and what the cost is to bring something back from North Carolina to California,” Mr. Commiskey said.

At reverse-logistics specialist goTRG, which handles returns for customers like Walmart and Lowe’s Cos., “the size of the units returned is up by 200%” since the pandemic, goTRG Chief Executive Sender Shamiss said.

For one home-improvement retailer, he said, the average return size went from 0.6 of a cubic foot to 1.4 cubic feet. Mr. Shamiss said one retail customer went from about 300 trucks of returned items per week to between 600 and 700 trucks.

The returns rate at Wayfair Inc., which IBISWorld estimates has 9.4% of the online furniture market, has held steady at about 5%, with no “meaningful change…during the pandemic,” a spokeswoman said. Still, the online furniture retailer’s sales are rising so fast that even a steady rate of returns likely means the company has a lot more unwanted merchandise on its hands.

Wayfair’s U.S. net revenue jumped 82.5% in the second quarter and 66.5% in the third quarter from the same periods in 2019, to $3.65 billion and $3.27 billion, respectively.

Detroit-based online furniture retailer Floyd Inc., whose sales have also jumped during the pandemic, has a similarly low return rate of around 5%. “But with any rate of returns it’s still a challenging and expensive process,” said Aaron Turk, the company’s vice president of operations and corporate development.

Typically Floyd’s returns travel the same way they shipped out. Most items don’t get returned to stock because the packaging has most likely been damaged, Mr. Turk said, so the company sells them off at an annual sale at its Michigan warehouse.

“We haven’t been able to do that this year” because of the pandemic, he said. “So inventory is piling up.”

Updated: 11-29-2020

Black Friday Was A Bust For Many Stores, Better For Online

Foot traffic plunges by half amid coronavirus pandemic while online sales jump; consumers turn to Amazon and big-box chains that offer one-stop shopping.

U.S. shoppers went online to purchase holiday gifts and score Black Friday deals they once crowded into malls to grab, as the coronavirus pandemic accelerated the yearslong remaking of the U.S. retail landscape.

Roughly half as many people visited stores on Black Friday as they did last year, according to research firms that track foot traffic. Meanwhile, online spending jumped 22% from a year ago, making it the second-best online shopping day ever measured by Adobe Analytics.

It is unclear whether an early start to the holiday shopping season, the online Black Friday surge and an expected record day on Cyber Monday will be enough to offset the money lost from in-person shopping for many chains.

Heading into the critical season, U.S. consumer spending has been strong despite the economic shocks and shutdowns tied to Covid-19. The National Retail Federation, a trade group, has forecast that holiday sales will increase at least 3.6% to about $755 billion, including at least 20% growth from online shopping to about $202 billion.

This year, web shoppers on Amazon.com Inc. or Best Buy Co. could get many of the same deals that stores once dangled only to those who lined up overnight. Those who did venture out made fewer stops and increasingly turned to big-box chains like Walmart Inc. and Target Corp. that sell everything from lettuce to Legos, according to the foot-traffic data, shoppers and retail analysts.

Christina Preza was browsing Christmas decorations inside a Walmart store on Black Friday. The 60-year-old executive from Woodstock, N.Y., has been spending more money at Walmart since the pandemic started, she said, because she is trying to limit her time inside stores for health reasons and is shopping more online. “It’s easier to buy all in one shop because I’m going about every two weeks,” she said.

The well-worn formula of one-stop shopping has proven especially lucrative during the pandemic. Big-box stores with groceries were deemed essential and allowed to stay open when department stores and malls were closed. Plus, Walmart and Target already offered curbside services in addition to online ordering.

Some of the big-box stores’ pandemic advantages were on display over the Black Friday weekend. This year many retailers closed on Thanksgiving Day, instead offering holiday deals both online and in stores as early as the first week of October. Online sales have jumped, favoring Amazon and those chains with robust e-commerce operations.

On Black Friday online sales hit $9 billion, up 22% from last year, according to Adobe Analytics, which measures 80 of the top 100 U.S. e-commerce sites. The gain was near the low end of Adobe’s forecast, which had projected growth of between 20% and 42% from last year.

It was the second biggest online-sales day, after Cyber Monday 2019 when sales hit $9.4 billion, according to Adobe. The firm expects this Monday to set a new record, with online sales of at least $10.8 billion or growth of at least 15% from last year.

Meanwhile, foot traffic to stores on Black Friday fell 48% this year from last year, said RetailNext, which provides cameras, software and analytics to thousands of U.S. stores and shopping centers. Sensormatic Solutions, another tracking firm with cameras in stores, said in-store traffic fell 52% on Black Friday compared with last year.

Both companies said their data showed spending outpaced foot traffic because shoppers purchased at the stores they did visit.

“Customers, if they chose to shop in stores, they chose to be a little more thoughtful about where they wanted to shop,” said Brian Field, a senior director at Sensormatic.

Spending at physical stores fell about 30% on Black Friday, estimates RetailNext, with apparel, footwear and jewelry all down more than 50%. In-store spending fell the most in the Northeast, down 52%, and least in the South, which fell 42%.

Black Friday was a continuation of a trend that has emerged since Covid-19-related restrictions in March. Cautious consumers are making fewer trips out of their homes and stocking up when they do. Some are adding higher-margin items such as clothing and cosmetics to their carts in the same places they buy groceries or household essentials.

“Am I spending more at Target? Yes, exclamation point, yes,” said Amanda Romeo, a 39-year-old inside a Target in upstate New York with her 11-year-old daughter on Black Friday.

Ms. Romeo discovered Target’s curbside pickup service for online orders early in the pandemic and is now a heavy user, she said. She goes to stores, often Target, as an occasional outing, she said.

“There is a little something for everyone. I can get milk. I can get toilet paper,” she said. “I can get this princess dress for my niece,” she said holding up a red velvet dress embellished with Disney characters.

The pandemic winners and losers were clear when a parade of retailers released earnings reports in recent weeks. Target said comparable sales, those from stores and websites operating for at least 12 months, rose 21%, boosted by a 155% surge in online sales. Walmart, the country’s largest retailer by revenue, reported comparable U.S. sales up 6.4% as online sales nearly doubled.

In contrast, many department stores, apparel and specialty retailers, already weakened before the pandemic as more shopping shifted online, are now mostly weaker. Macy’s Inc. comparable sales fell around 20% in the most recent quarter. Kohl’s Corp. sales declined 14%, and T.J. Maxx parent TJX Cos., which had strong sales before the pandemic, reported a 3% decrease.

Shoppers are still gravitating to retailers that align with pandemic shopping trends, such as comfy clothes and home goods, said David Bassuk, global co-head of the retail practice at AlixPartners. But big-box retailers are gaining market share by offering products “the way the consumer wants it—accessible, easy—and they are able to make more money at it.”

Permanent store closures hit a record in the first half of the year and several chains, including J.C. Penney Co. and J.Crew Group, filed for bankruptcy protection.

Penney is closing hundreds of stores and selling most of its business to two big mall owners while J.Crew emerged with new owners. Meanwhile, many small retail businesses have also struggled to grab the same percentage of business without robust e-commerce supply chains and technology.

Retail executives and industry groups are pushing to keep stores and malls open as coronavirus cases surge across the country. They are trying to avoid, in the critical holiday season, the restrictions and closures that crippled many chains during the spring.

“Consumers have evolved their purchasing behavior,” said Matthew Shay, chief executive of the National Retail Federation, an industry group. “They are trying to limit the number of trips they make and bundling purchases. Nevertheless, those retailers who have a particular expertise are finding ways to compete.”

Beleaguered department stores have a role to play in a post-Covid-19 shopping world, said Macy’s CEO Jeff Gennette. “There is room for us,” he said in an interview before Thanksgiving. “Customers need help developing their styles. They look to us to help them do that.”

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