12/22/2011 03:09 pm ET

Holiday Sales Up, But So Are Customer Returns

At the start of the holiday shopping season, retailers breathed a collective sigh of relief.

Unemployment has remained stubbornly high and consumer confidence has hit historic lows this past year. But in the days since Thanksgiving, shoppers have flooded American stores and retail websites, generating what the National Retail Federation estimates will be about $469 billion in sales, the largest one year increase since the recession began.

But now early data indicates that all that enthusiasm also has a down side. The more people shop and the earlier they do so, the more likely they are to make returns, retail analysts say. Consumers are expected to return $46.28 billion in merchandise purchased during the 2011 holiday season, according to the National Retail Federation, a trade group. That's up 4.25 percent from the $44.39 billion in goods returned after last season.

"Anytime sales go up, so do the returns," said Joseph LaRocca, the senior advisor in asset protection at National Retail Federation. "That's just the way it is. This year, the other factor is that consumers are very picky about the merchandise that they are taking to their friends and relatives as gifts."

And consumers have a growing slate of tools -- Internet searches and phone apps that can be used in stores -- to help them comparison shop, hunt for better prices and -- when necessary -- make strategic returns. Nearly 85 percent of consumers who have downloaded price comparison applications plan to use them to save money this holiday season, according to a report released this month by PriceGrabber, a price comparison website and mobile app. Price Grabber's findings are based on a survey of 4,000 consumers.

In November retail stores reported record sales on Black Friday, the day after Thanksgiving. Consumers spent $11.4 billion in the nation's stores, a 6.6 percent increase over the previous year, according National Retail Federation data.

The trade group also surveyed nearly 4,000 consumers and found that about 86 million Americans opted to buy something on Black Friday in stores and online. Nearly 30 million also got a head start on holiday shopping by taking advantage of a new retail-industry trend -- stores open on Thanksgiving Day.

Analysts attributed the strong start of the holiday shopping season to the fact that at least some consumers feel likely to have a job next year. Many others have delayed purchases for necessary items such as clothing and are now are eager to take advantage of deep holiday discounts.

That mix of the hope and the pragmatism also seems to be shaping what people buy. Economically-confident consumers have snapped up luxury goods this holiday season, while the economically insecure have ploughed though flash sales and bargain bins, trends that have made retailers who cater to the rich and the cash-strapped happy.

"We have heard anecdotally from some of the luxury folks that they are seeing very strong sales -- very very strong sales," said LaRocca. "At the same time, we've seen other retailers tighten inventory and really focus of stocking a lot of specialty promotions that will draw customers into the stores, keep them engaged in the business and then buy some full-priced items. This year, that started early and it has really continued."

But all that shopping also generated extra customer returns, a part of the retail business that have to be managed with care, LaRocca said. Stores need to strike the right balance between preventing coordinated theft and fraud and making returns easy, seamless and even pleasant so that shoppers will return, said LaRocca.

In recent years, many retailers have relaxed receipt requirements just after the holidays or begun handing out gift receipts to shoppers that make it easier for gift recipients to return items that aren't quite right. But several retailers have also instituted return windows. In many stores even customers with receipts must bring the merchandise back within 90 days or less.

The problem: criminal rings that steal merchandise then manage to return it for cash or store credit. Some even generate counterfeit receipts and present them at store registers, LaRocca said. Then there are the individuals involved in more run of the mill fraud such as "wardrobing" and "closeting." That's what retailers the practice of buying a holiday dress, wearing it to a weekend party, then returning it to the store with the receipt.

"That may not be an explicit crime, but these people are trying to use retailers and rent products that are for sale," said LaRocca, who spent 20 years working in the retail industry before joining the National Retail Federation's staff. "I can't tell you how many times I saw people come in with entire bags of gross, dirty clothing and a receipt to initiate a return. That's part of the reason why you've seen those return windows put in place."

Fraudulent and criminal return activity is expected to cost retailers $14.4 billion this year, up 5.8 percent from $13.6 billion last year, according to the trade group's data.