{"id":18681,"date":"2025-02-15T13:06:32","date_gmt":"2025-02-15T13:06:32","guid":{"rendered":"https:\/\/www.certitrek.com\/isba\/?p=18681"},"modified":"2025-02-16T14:27:55","modified_gmt":"2025-02-16T14:27:55","slug":"returns-policies-impact-on-valuation","status":"publish","type":"post","link":"https:\/\/www.certitrek.com\/isba\/returns-policies-impact-on-valuation\/","title":{"rendered":"Returns Policies: Impact on Valuation"},"content":{"rendered":"

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<\/strong><\/a> is expected to be returned in 2024, up from 15% in 2023. It\u2019s not just about putting items back on shelves\u2014less than 10% of returns make it to primary inventory<\/strong><\/a>, says Marcus Shen, CEO of B-Stock. That\u2019s a big problem.<\/p>\n

Here\u2019s why: a lot of those returns miss their moment. Seasonal products? They\u2019re tough to sell in January. Storing them costs money, and markdowns eat into profits. For non-resellable items, it\u2019s even worse. Some end up being disposed of, which isn\u2019t just bad for margins\u2014it\u2019s bad for the planet and a retailer\u2019s reputation.<\/p>\n

Then, there\u2019s 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 \u201cbreakage\u201d (funds from unused cards), they also face accounting headaches from these deferred liabilities.<\/p>\n

This mix of returns and unused gift cards can mess with a business\u2019s 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<\/a>, the upcoming Presidents’ Day sales surge serves as an opportunity for retailers to clear out excess inventory<\/span>.<\/p>\n

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.<\/p>\n

How Returns Impact Valuation<\/strong><\/h5>\n

To break it down further, high return rates and unredeemed gift cards can impact a business’s financials in several ways:<\/p>\n