By: Anna Holzhauer
With Christmas just around the corner, Americans are eager to check items off of their Christmas lists. From clothes to furniture and even cars, we average spending $800 on gifts for other people. From a consumers point of view, Christmas time is great for spending time with family and friends along with the giving and receiving of gifts. From a producers standpoint, Christmas time leads to inefficiency, hassle, and sometimes loss from the excessive returns following Christmas.
Christmas sales lead to inefficiency in the retail industry due to the increase is sales in just one month. Retailers need to have the capacity in their warehouses for the shelf space and the capacity to transport the goods to the consumers. If consumers spent all their money more evenly throughout the year, we would be using our resources more efficiently. Our economy wouldn’t have to build all the spare space that isn’t used the rest of the year. Producers are not being productively efficient during Christmas time in order to keep up with the high demand for their products.
Christmas time becomes a hassle when consumers start returning their gifts. The NY post states that around 260 billion dollars worth of stuff is returned every year and roughly 25% of those returns happen after Christmas time. Retailers have to hire more workers not only for the holidays but also the month that follows. They hire more workers in January, in order to make the return process smoother. 80% of consumers won’t make a purchase if the stores return policy is too strict or the return process is too much of an inconvenience. Producers are not only concerned about the potential loss of revenue but also the loss of future customers. Returns are a great way to increase or decrease customer happiness.
Lastly, returns can result in decreased revenue or even loss. “Retailers don’t want returned merchandise, because they don’t have room on their shelves for it, and they don’t have the resources to determine whether something’s been damaged,” NY Post says. Only 5 percent of returned presents find their way back on the store’s shelves. The other 95% of returns become a loss in the retail industry.
Works Cited
Fickenscher, Lisa. “Here's What Happens to All Those Unwanted Christmas Presents.” New York Post, New York Post, 3 Jan. 2017, nypost.com/2017/01/02/heres-what-happens-to-all-those-unwanted-christmas-presents/.Gobry, Pascal-Emmanuel. “Let's Ruin Christmas by Turning It into an Economics Lesson.” Vice, Vice, 9 Dec. 2016, www.vice.com/en_us/article/z4nqw3/how-christmas-explains-economics.
“How To Keep After-Christmas Returns From Taking a Bite Out of January Revenues.” Shopify, Shopify, www.shopify.com/blog/how-to-keep-after-christmas-returns-from-taking-a-bite-out-of-january-revenues.
Pettit, Carl. “The Economics of Christmas - How Much Americans Spend on Presents, Cards, Travel and More.” AllChristmas.fm, allchristmas.fm/economics-of-christmas-spending/.
The lack of time to respond definitely creates inefficiency in these markets. When demand suddenly shifts to the right, an individual firm may choose to increase quantity produced, but the existence of fixed inputs means that the firm will not produce at minimum ATC, leading to deadweight loss. In the long run, a firm typically has the opportunity to increase their amount of all inputs, moving to the right along their long run supply curve. However, the temporary nature of the increased demand prevents this transition from taking place, leading to temporary inefficiency until demand returns to pre-Christmas levels.
ReplyDeleteThis is really interesting, I've never thought of it this way. There are a lot of people who wish to give gifts during the holiday season, which drives up the demand for just about everything. It never occurred to me that people return gifts at almost the same rate as people buy gifts. Which would leave the company back the way before the gift was bought, or worse off. Firms have to increase supply to match the demand of the holiday season, afterwards when people return their gifts the firms increased supply for no real reason.
ReplyDeleteI believe there are lots of people who return gifts after christmas. I wonder if the businesses would benefit from taking on a high price for each return? If that happens, companies would have to spend less money on warehouse and storage space as well as less money to pay employees needed for handling returns.
ReplyDeleteI’ve never thought about the loss that retailers make after Christmas, I’ve always just thought about the initial gain. It was really interesting to me that only 5% of returned items find their way back on the store’s shelves and the other 95% becomes a loss. What happens with the other 95%? Do they find ways to put it back in the market, or did they increase their production for nothing? Companies increase their supplies because everything is in high demand, and then their products get returned, making that a big loss for the companies.
ReplyDeleteThis is really an interesting point of view as many people put the focus of buying gifts during the holiday season, but not the side of returning them and how that plays a role in the economy. The fact that 260 billion dollars worth of stuff is returned every year means that retailers and businesses have to pay that money back. However, sometimes I think returns may be beneficial for some stores because it brings people into the store, therefore possibly attracting them to buy other items. Also, for some stores when you return items, the amount gets put on a store credit, so technically the money eventually will get back to their own business. I can see how all the returns create problems for the retailers with not having enough shelf space for the new and old products which then leads to messy displays filled with pre-opened items.
ReplyDeleteI never realized that most companies usually hire more often in the month of January because of all the returns expected to occur after the Christmas chaos. I have always thought about the expenses that pour into these firms/ companies each year during this holiday season but I haven’t really thought about just how much is taken back if not at the same rate it was being bought. This occurrence not only impacts these industries but it takes away from our supply of certain materials and items that may have been overstocked and now aren’t being used.
ReplyDeleteI never really thought about Christmas like that with all the returns because yeah sometimes they get in a wrong size or its not with your style. But they got you it and they don't have to get you anything. Other than that I would say that Christmas is a hassle because of all the things going on at once. and also how they lose when a bunch of items are getting returned.
ReplyDeleteIt’s never really thought about how Christmas shopping really does affect suppliers. With returns there becomes a surplus of the product which means a loss in revenue. It was interesting to think about buying Christmas gifts throughout the year but in reality no one would ever do that. They think about, what if I forget about it, what if something better comes out. Simply questions that aren’t too important because if you are buying gifts year round, and putting them in a certain spot, they won’t be forgotten. Also if something better comes out, you can return what you have and get the better thing, it will still eliminate the idea of having so many returns after Christmas.
ReplyDeleteI never thought about the return side of purchases but when you look at that closely that is a huge number. But how can that be very hurtful when people are buying so much stuff and most aren’t returning stuff, at least from what I’ve seen. The economy must be thriving too since the consumers are buying stuff and businesses are able to make a profit and give away stock. This has got to be better than nobody buying anything since then we’d be risking inflation but then again with this high increase we could risk recession but that would be if it got too out of control.
ReplyDeleteI've never thought of the aftermath and how much money stores then lose after all of the returns after christmas. But do they really lose money? they just end up making less, which isn't a huge deal, but it would decrease their sales.
ReplyDeleteThis is crazy to think that Christmas causes these inefficiencies within a company, especially when it comes to returns. Companies cram in all of they're production within the small time frame that is needed for Christmas. Most of the time a lot of those gifts are returned because someone doesn't like it, it doesn't fit or they just don't need it. To be honest I never really ever thought about the economics side of Christmas until taking this class. You never really realize that economics impacts every part of our lives.
ReplyDeleteIt is crazy to think that about 1/4 of all of the returns made in a year comes only from the time period after Christmas. Also, your blog post has made me realize that even though this time of year can be the most profitable for many businesses, it also can lead there to be great margins of loss due to the returns of gifts that someone might not have wanted. It has lead me to think that Christmas is a time of loss in the business world and not gains.
ReplyDeleteI never would have thought about how many things were returned each year after this holiday season. I wounder how company handle all of these take backs. There still is the side though were there are all the gifts sold that are not returned that are able to create such a huge economic profit for companies that this must out weigh the losses of returns.
ReplyDeleteAs a consumer I don’t often think about the effect that my purchasing decisions, or the lack thereof, have on the business or retail store. Around the holidays, I am often so busy that I don’t return presents that I received until months after. It’s probably a pain for stores, especially with clothes, when something is returned that is no longer in season. The product is returned for its full price and then most likely put on the sales rack and sold for less. Also, as the demand for workers during the holidays increases, the wage must be raised as well because people don’t enjoy working during busy shifts and need to be incentivized. I think this is especially true during this time of the year because people value their leisurely time more as the holidays represent a time to spend with friends and family.
ReplyDeleteAfter reading this post, I realized another potential loss that firm's could suffer from after Christmas returns. Often, Christmas gifts can be clothing that are typically of the winter collection that came out that year. Consumers watch in fall as these collections come out and ask for htem for Christmas. However, once Christmas is over, many items seem less appealing as new spring styles are on their way. If an individual returns a christmas or winter themed item, it is unlikely another consumer will buy that item post-holiday season. This can contribute to an excess of product purchased by the firm, ultimately costing them another loss as it sits in the warehouse unpurchased.
ReplyDeleteLuke Lochner
ReplyDeleteI was surprised that the return of goods would actually decrease the company revenue. I always thought that since returned items only get a percentage of money back it would increase the company revenue. Especially, based on experience, when people go right back to the store and buy another item. Weather it be a different size or different item altogether, I know that I usually end up repurchasing something from that store.
I’d be interested to see the sales numbers for a store before christmas, then look at their sales after christmas to see what the difference is in sales. The number of returns at each store must have an impact on their sales, right? A store might make a bunch of money in December, but then in January their sales report should be affected due to all of the money going back to the consumer.
ReplyDeleteThere is a lot of last minute shopping causing a scramble to find a present for a certain someone. Money is being lost by these firms because of all the returns, as you mentioned they need these workers and need to hire more workers to help sort out this problem, then when Christmas time ends they get layed off. I guess a solution to this problem could be forcing yourself to like any present you get.
ReplyDeleteI never really thought of this till i read this post but if all retail stores would not allow returns after Christmas they would probably make more money because of people who got presents that weren't the right size, style, or they just didn't like them. but what about retailers offering store credit?
ReplyDeleteReturns are probably the most complicated thing that employees working at retail stores have to do. With this, many probably don't realize the inefficiency of returns, because many people still return gifts. Because more people are working because of the increase in returns, it helps the economy with the flow of money through paychecks. However for the owners, returns are just lost money. With a large influx of returns in a short period of time, there are many issues that come from this time of year for retailers.
ReplyDelete-Colin Pham