Boomerang Fashions: Are Clothing Returns The Scourge of The Online Shop?

Two venerable British retailers emerged with figures this week suggesting that, while not exactly market leading, they are at least hurrying to get ahead of the online shopping phenomenon.

House of Fraser yesterday said online sales increased 53 per cent to 10.9 per cent of total sales - roughly £110 million, we calculate, of its £1.2 billion sales. Meanwhile, Marks & Spencer said on Tuesday that online sales increased 16.6 per cent to 13 per cent of its general merchandise sales. Again, we're calculating, because it does not break out precise general merchandise sales - clothing and home and excluding food - until the Annual Report in a few week's time, but that works out at £546 million of an estimated £4.2 billion of general merchandise sales and against total sales of £10 billion.

We say in the opening paragraph that this is not exactly market leading because clothing retailer Next's Directory and internet sales are about a third of total sales and department store John Lewis online sales are about a quarter.

But the thorny question, which does not seem to have been raised yet amid all the hyperbole, is how much of these sales are fashions returning like the proverbial boomerang? How much does it cost to deal with?

People have always returned clothing when buying from catalogues. Ordering four or five items - two or three sizes in different styles or colours - is not unusual. A consultant we spoke with recently said that could account for at least a quarter of total clothing sales at some businesses. 

We do not think this is such an issue for the likes of Next, which has a slick distance-selling model ingrained in its business, or catalogue giants like N Brown and Shop Direct turning their hands to online retailing. These firms have for years had mechanisms for dealing with returns built in to their systems. We also think that for John Lewis it may not be so much of an issue - it has been selling online for much longer than other department stores and, what is more, a large proportion of its sales are home and electrical goods rather than clothing.

However, our sources suggest that for others the growing problem of returns is hidden and often becomes a burden on stores where people feel as happy 'clicking and returning' as they do clicking and collecting. So the returns often go against the stores sales because many operating models cannot account for returned stock in a more sophisticated way that would allow staff to mark it against the internet division. 

And anyway, in this new multichannel or omnichannel world - who cares, right? It also allows firms to tell their investors and the media that online sales are booming while brushing the problem under the carpet. 

So what is happening to all the returned stock that for a business like Marks & Spencer or House of Fraser must account for tens of millions of pounds worth of the best selling items? Does not make it back into the online distribution warehouse in a hurry or the racks of the shop floor where it was returned? We suspect probably not. Does it end up in their burgeoning Outlet chain of stores in discount shopping villages? How is it accounted for on the balance sheet? 

Over the next few weeks and months we plan to have a look at this in more detail and consider the true scale of the problem, how firms currently handle returns and what they plan to do about the issue as it no doubt begins to weigh heavily on their businesses.