28.12.04

TIME-CONSISTENCY PROBLEM. More shoppers are buying gift certificates, which have odd effects on the retailers' bottom line.
This year, sales lagged behind expectations in the early weeks of December, so a strong last week of the month is crucial for many retailers. Sales of gift cards were expected to rise for the holiday season, and that should bring more shoppers into stores this week and into January.
Let's see if I remember the accounting.

Store sells the gift certificate. Debit cash, credit some sort of future liabilities account.

Shopper redeems the gift certificate. Debit the liabilities account, credit inventories.

Because the good has now been sold, now the store can work out the cost of goods sold and report Christmas-season sales and profits.

The more interesting problem involves the timing of sales, which gift-certificate holders are exploiting.
Gift cards are a mixed blessing for retailers. While consumers who use them typically buy more than the face value of the cards, they also are shopping after Christmas and buying heavily discounted items.
Yes, but stores are now making pre-Christmas markdowns to clear the stuff out before Christmas, which is when it used to be purchased, and when the cost of goods sold and gross margin could be calculated. Retailers are already figuring some of this out.
“I think you’re going to see stores promoting higher-margin goods for shoppers with newfound money, and maybe less discounting,” [consultant William] Michaels said.
There is one other advantage retailers are going to recognize eventually.

“There’s a lot of stuff left,” said Catherine Spelshaus of Waukesha, who shopped at Kohl’s on Sunday.

Spelshaus was at Mayfair on Monday with her son Adam, 23, to exchange Christmas gifts at Boston Store and to look for bargains. “I’m probably going to wait yet, because I think there’ll be further markdowns,” Spelshaus said.

Those exchange desks don't run for free. Not only that, returned goods have to be credited to inventories with adjusting entries to the cost of goods sold, and the gross margin, no? (Hmm, do those reported sales figures reflect reserve accounts established for returns, or not?)

Somebody remind me once again how precise those numbers are ...

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