Returns policies play a huge role in the post-holiday season chaos. Picture this: after the unwrapping frenzy, a tidal wave of returns hits stores, with some retailers seeing up to three times the usual volume. According to the National Retail Federation, $890 billion worth of goods is expected to be returned in 2024, up from 15% in 2023. It’s not just about putting items back on shelves—less than 10% of returns make it to primary inventory, says Marcus Shen, CEO of B-Stock. That’s a big problem.
Here’s why: a lot of those returns miss their moment. Seasonal products? They’re tough to sell in January. Storing them costs money, and markdowns eat into profits. For non-resellable items, it’s even worse. Some end up being disposed of, which isn’t just bad for margins—it’s bad for the planet and a retailer’s reputation.
Then, there’s the gift card puzzle. Americans spend nearly $30 billion on gift cards during the holidays, but not all get used. Starbucks, for instance, sits on $1.77 billion in unredeemed gift cards. While retailers do get a boost from “breakage” (funds from unused cards), they also face accounting headaches from these deferred liabilities.
This mix of returns and unused gift cards can mess with a business’s finances, from inventory turnover ratios to revenue forecasts. The ripple effect? A lower valuation – since profitability and growth potential take a hit. As noted in this Forbes article, the upcoming Presidents’ Day sales surge serves as an opportunity for retailers to clear out excess inventory.
This flurry of discounts highlights how inventory returns directly influence retail strategies well into February. Understanding how these returns and subsequent sales events affect a company’s financials provides an important context for valuation professionals.
How Returns Impact Valuation
To break it down further, high return rates and unredeemed gift cards can impact a business’s financials in several ways:
- Inventory Management: Excess returned inventory ties up resources and increases storage costs.
- Revenue Forecasting: Returns after holiday peaks can distort revenue recognition.
- Profit Margins: Deep discounts during events like Presidents’ Day cut into profit margins.
- Long-Term Valuation: Frequent returns could indicate issues with product quality or sales practices, potentially lowering a company’s perceived value.
Tips for Businesses to Get Ahead
Retailers who want to avoid financial hits during the returns season can:
- Refine Returns Policies: Make returns rules clearer and use technology to process them more efficiently.
- Optimize Inventory Channels: Leverage secondary markets like B-Stock to quickly sell excess merchandise.
- Incentivize Gift Card Use: Encourage customers to use gift cards with limited-time offers, reducing future liability.
- Analyze Returns Data: Identify and address recurring issues to prevent future returns.
Post-holiday returns are here to stay, but businesses that tackle these challenges head-on can protect their bottom line and keep their valuation strong.
Why Work with Accredited Business Appraisers?
Understanding the financial impact of returns requires more than internal analysis—it demands expert insights. Partnering with a certified business appraiser can provide clarity when assessing inventory losses, gift card liabilities, and overall company valuation. The International Society of Business Appraisers (ISBA) offers resources to help business owners connect with accredited professionals like Business Certified Appraisers (BCAs).
- Find an Appraiser: Explore ISBA’s BCA Directory to locate qualified appraisers near you.
- Verify Credentials: Use the Verify Credential tool to ensure you work with a BCA-credentialed expert.
Don’t leave your business valuation to guesswork—partner with certified professionals who understand the complexities of retail returns and their impact on your company’s financial health. What are your thoughts? How do you think retailers can navigate the returns wave better?
Level Up Your Business Valuation Expertise
Whether you’re a business owner seeking to strengthen your understanding of valuation or a professional looking to deepen your skills, the ISBA’s BCA Certification Classes can help. Join our upcoming sessions in April 2025 or September 2025 and gain practical, industry-recognized knowledge. Learn more about ISBA’s training today.
