Historically, the months after the holiday season bring an increased level of returns and low-profit margins for retailers. In fact, retailers expect 17.9 percent of merchandise sold during the 2022 holiday season to be returned – about $171 billion – in 2023. 

One strategy to navigate the return season has always been to offer more lenient policies for holiday-related returns. This both increases customer loyalty (as consumers historically prefer retailers who offer flexibility to meet their shopping preferences), as well as extends the amount of time a return may impact a business’s bottom line. So, instead of a massive lump sum of returns dragging profits all in one month, an extended period can allow for a slower trickle of negative growth and provide more time for sales throughout Q1.

But, with the looming threat of recession, a continued volatile economic market and persistent inflation, 6 out of 10 retailers have now changed their return policies. This includes shortening the time frame shoppers can send an item back, no longer accepting returns with no receipt in exchange for store credit and charging fees or making shoppers cover the shipping costs themselves.

This policy change is expected to have an impact on many retailers – especially the small businesses who can’t always afford to keep up with the continual sales and discounts that big retailers offer to clear out inventory – once consumer frustration reaches a peak, as this comes during a time when shoppers are prioritizing sales and flexibility above all else. In fact, a recent Xero survey demonstrated that consumers are keeping a closer eye on deals now, as worries about the economy greatly increase. For example, the survey demonstrates that:

• 76 percent are extremely/very concerned about inflation;
• 68 percent are extremely/very worried about a recession;
• 58 percent are watching more often for sales and discounts;
• 47 percent are spending more time looking for the best prices; and
• 39 percent will prioritize price above all else.

It is clearly more important than ever that small business retailers are in control of their finances by having an accurate sense of cash flow. As inflation continues, it becomes essential for retailers to focus on their profit margins and the impact of their customer’s declining spending power. Understanding exactly what is happening to their costs and profit margins at all times will help them better navigate this tricky period.

One way to ensure retailers always have a pulse check on their cash flow is to lean into technology to automate tasks, manage inventory and track financial transactions in real-time. An example of this is utilizing cloud-based accounting software, like Xero. This type of platform helps business owners manage their bottom line more accurately and run their store more efficiently by synching with a bank and financial information, monitoring cash flow and automating tasks – like sending invoice reminders in an effort to identify alternative sources of income throughout the season.

These automated tasks will ensure small business owners are consistently aware of how much return loss is acceptable per month as they plan for purchases, keep the lights on and pay their employees. Working with an accountant as an advisor will also benefit smaller retailers as they look to get in control. While lenient returns may be a thing of the past, investing in technology and working with a trusted advisor will be step one to navigating the ongoing economic disruption. 

Tanner Hoffman is the General Manager, Small Business Growth, North America at Xero. In this role, he leads Xero’s North American small business direct growth strategy and oversees a team focused on small business onboarding and helping Xero’s small business customers succeed. Additionally, Tanner leads franchise and industry vertical strategies for Xero where he oversees a team focused on developing these channels as new avenues for growth. In addition to his work with Xero, Tanner owns and operates a farm in Eastern Nebraska, which is the foundation for his interest in helping other small business owners thrive.