The Retail Equation (TRE) publishes the annual Consumer Returns in the Retail Industry report to shed light on return trends and, ultimately, help retailers compare and improve their business processes. We are pleased to extend the application of this report to a monthly analysis of merchandise return activity. Each month, TRE will release the TRE Return Index, which is a numerical estimation of the volume of returns compared to U.S. retail sales. Our goal is to provide retailers with a monthly overview of return trends, statistics, and key learnings.

Trend report observations from this month include:

2016 RETAIL RETURN TRENDS

The peak return season started in November with an 11 percent increase in the TRE Return Index. In December that figure rose another 41 percent.

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DECEMBER

The winter holidays disrupted the normal return patterns, making Monday and Tuesday the days with highest volume of returns and making Saturday one of the lowest days.

The peak return season started in November with an 11 percent increase in the TRE Return Index. In December that figure rose another 41 percent.

In December, Iowa displaced California as the state with the highest return volume per store.

TRE Return IndexVolume of Returns (Unit Adjusted) Compared to U.S. Retail Sales

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Legend: — TRE Return Index --- TRE Return Index (estimated) — U.S. Monthly Retail Sales (unadjusted)

TRE Return Index = 119.9

Change from Prior Month = 41.1%

$278.0 B

Returns by Date/Time and Retailer Type

Returns by Day of Week

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Return Index by Retail Category

Return Index by Retail Format

The winter holidays disrupted the normal return patterns, making Monday and Tuesday the days with highest volume of returns and making Saturday one of the lowest days.

In keeping with seasonal trends, returns peaked Monday, December 26 (the day after Christmas and two days after the start of Hanukkah) and remained very high through Friday.

The TRE Return Index for mall based retailers increased 58 percent, and it increased 45 percent for big box stores.

Returns were up across all categories. Mixed goods retailers suffered the highest influx with a 121 percent increase. Department stores were in second place with a 47 percent increase.

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2 | 2016 RETA IL RETURN TRENDS

Legend: — Department Stores — Mix of Hard and Soft Goods Retailers — Hard Goods Retailers — Soft Goods Retailers

Legend: — Big Box Retailers — Mall Based Retailers — Strip Mall and Stand Alone Retailers

Returns by Day of Month

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Average

Returns by Geographic Location

Returns by State

Returns by Region

In December, Iowa displaced California as the state with the highest return volume per store.

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3 | 2016 RETA IL RETURN TRENDS

The TRE Return Index for the West was 41 percent higher than the South, which had the lowest Return Index.

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NORTHEASTTRE Return Index: 113.1Percent of total returns: 22.4%

SOUTHTRE Return Index: 103.4Percent of total returns: 32.8%

MIDWESTTRE Return Index: 136.1Percent of total returns: 23.3%

WESTTRE Return Index: 146.0Percent of total returns: 21.4%

10 states with lowest frequency of returns

Average states

10 states with highest frequency of returns

Methodology and Participating Retailers

The monthly TRE Retail Return Trend report is compiled by The Retail Equation by analyzing merchandise return transactions from retailers in the U.S. and Canada over a variety of retail segments, including many of the world’s largest, well-known big box, mass merchandise, department store, grocery/drug, and specialty retail merchants.

The Retail Equation would like to thank all of the retailers who regularly participate in this report. You will notice that no retailer names are mentioned, per TRE’s commitment to maintain confidentiality of each organization’s data.

The Retail Equation

The Retail Equation, an Appriss company, optimizes retailers’ revenue and margin by shaping behavior in every customer transaction. The company’s solutions use predictive analytics to turn each individual shopper visit into a more profitable experience. This yields immediate financial payback, increasing store comps by as much as two percent, with significant return on investment. The Software-as-a-Service applications operate in more than 34,000 stores in North America, supporting a diverse retail base of specialty apparel, footwear, hard goods, department, big box, auto parts, drug/pharmacy, grocery, and more.

PO Box 51373 Irvine, CA 92619-1373 USA +1 (888) 371-1616 www.TheRetailEquation.com

© January 2017. The Retail Equation, Inc., an Appriss company. All Rights Reserved. The Retail Equation logo is a trademark of The Retail Equation Incorporated. Patents, pending patents, trademarks, service marks and registered trademarks referenced herein are the property of The Retail Equation Incorporated, including but not limited to The Retail Equation, Verify Return Authorization, Verify-1, Verify-2, Verify-3, Receipt Verification, Change for Charity, Return Rewards, Purchase Rewards and Patents 6,016,480, 7,455,226, 8,025,229, 8,355,946, 8,356,750, 8,561,896, and 8,583,478.

Proprietary and Confidential. TRE3015-12

Doubtless one of the metrics you create is your return rate. Most retailers pull that report from the POS or EBR system which typically makes this calculation:

Return Rate = Total Return Only Transactions / Net Sales

Unfortunately for your business, that calculation underrepresented the actual return rate because it ignores exchanges and their related costs for labor, waste, etc. Therefore, 2017 should be the year you begin to calculate your real return rate:

Real Return Rate = Total Returns / Gross Sales

The results will be eye-opening. Using the old calculation method, one major retailer pegged its return rate at 3.7 percent; the new, real return rate was 9.3 percent. Another retailer’s statistics went from 8.6 to 15.3 percent. For more real-world statistics and a deeper explanation of the value of the real return rate for business management, you can download our white paper at http://bit.ly/RetRate — no registration required.

RETURNS IN FOCUS