High Online Return Rates Are Hurting Brick and Mortar Sales

It’s no secret that return rates online are much higher than in-store, but what might surprise you is that online return rates are starting to really impact in-store sales. It might sound confusing but struggling retailers are doing whatever they can to stay alive, and in some cases this means deducting online returns from overall sales which means in-store sales sees a real impact.

Mall owners, already squeezed by e-commerce and spending billions on property makeovers to draw shoppers, have a new headache: retailers deducting returns for items bought online from their sales figures.

David Simon, chief executive officer of Simon Property Group Inc., says a “significant number” of tenants are underreporting sales and that the company, the largest U.S. mall owner, is negotiating with them to find a solution. (Source – Bloomberg)

Mall owners base rents on the sales figures of physical retailers which means if those sales goes down, so do the rents. While it can be easy to think that eCommerce is taking over, while it is growing like crazy, it still only accounts for about 10% of retail sales:

Let’s be clear. Physical retail is far from dead. There is no “retail apocalypse.” E-commerce is not eating the world. Every mall is not closing. And many of the brands we all know and love are likely to be around for a long time. (Source – Forbes)

Still as eCommerce grows so will returns, and if retailer continue the trend of deducting returns from their sales Mall owners will soon be in a tough position, raise rents to capture the lost revenue or reduce profits, either way there’s a chain reaction brewing and at the heart of the issue is – returns.

The biggest offender when it comes to high online return rates is apparel which sees average return rates in the 30% range but can get as high as 50% when looking at harder-to-fit products like denim and formalwear. This means that apparel retailers are going to be the most likely to see large reductions in sales and hit mall owners the hardest.

What this all probably means is that Malls will need to change the way they do things and start charging rent using a different metric. It’s not all doom and gloom and no the “retail apocalypse” isn’t coming, but both retailers and Malls will be changing faster than ever before as they adapt to new consumer behavior.

Leave a Reply

Your email address will not be published.