U.S. holidays ‘record sales’ could be due to inflation

U.S. customers reached record sales during this year’s holiday season. Still, according to CNN, this was primarily due to inflation, which forced consumers to spend more for retail goods and dining experiences.

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U.S. retail sales increased 7.6% from November 1 to December 24, compared to the same time last year, according to the Mastercard Spending Pulse, released past Monday, and published by CNN. 

The index tracks in-store and online retail sales, excluding automotive sales, across all forms of payment and is not adjusted for inflation.

The report is a welcome sign after a pullback in consumer spending led to a dip in US retail sales in November, despite a strong turnout for Black Friday. Still, inflation likely accounts for much of the year-over-year rise in holiday spending.

Record sales with diversified spending 

The Personal Consumption Expenditures price index — the Federal Reserve’s preferred measure of inflation — rose 5.5% in November from a year earlier, the Commerce Department reported Friday.

“Consumers and retailers navigated the season well, displaying resilience amid increasing economic pressures,” Michelle Meyer, North America Chief Economist at the Mastercard Economics Institute, said in a statement.

According to Mastercard, consumers diversified spending to cope with higher prices and prioritized dining out and other experiences. Restaurant sales grew more than 15% compared to the same period last year.

After the sales comes… the returns 

Alongside the record sales, retailers in the U.S. are already expecting the so-called ‘return season’. Usually, a couple of weeks after a tremendous sale season, brands and companies are slammed with returns. Especially because the e-commerce industry turned into a golden standard, the ‘free returns policies’.  

From customers who hated the gift they were given, to people who just needed a change of color or size in their product, to others who genuinely had issues with their brand new product, a myriad of buyers return what they bought for a myriad of reasons. 

And the volume of returned products is massive and has quickly become a huge issue for brands and the environment. 

Customers sent back around 17% of the total merchandise they purchased in 2022, totaling $816 billion, according to data from the National Retail Federation.

That’s a strain on retailers: For every $1 billion in sales, the average retailer incurs $165 million in merchandise returns, according to the NRF. Not to mention the added CO2 emissions and the substantial carbon footprint derived from the returns. 

“For every dollar in returned merchandise, it costs a retailer between 15 cents to 30 cents to handle it,” Burt Flickinger, retail expert and managing director of retail consultancy Strategic Resource Group, according to a report by CNN earlier this year.

It seems that the 2022 Christmas and New Year ‘return season’ will be the last free return season, for the free inverse logistic standard no longer seems possible to sustain.