One of the foundations of online shopping was free returns, but not anymore.
After years of subsidizing them, more and more retailers are charging customers to return unwanted goods. It’s a risky move, as shoppers have become accustomed to buying an item in multiple sizes and colors and returning what doesn’t fit for free.
The list of slashing retailers includes Zara, Abercrombie & Fitch and Boohoo. In the United States, the number of large retailers requiring return shipping has risen from 31% to 40% this year, according to research by Narvar, a logistics software company.
“I expect others to follow,” said Honor Strachan, an analyst at research and advisory firm GlobalData Plc. “It only takes one, and the others will think, ‘Well, if Zara can do it, we can do it too.'”
The pullback in returns comes after the e-commerce industry has spent the past two decades stripping supply chain and customer service costs. But returns had barely been touched, leaving them as one of the few places with plenty of room to cut spending. They are expensive due to the labor required to return them, inspect them, and relist them.
Investors are also clamoring for online businesses to increase their profitability (or be profitable) instead of constantly focusing on growth.
The pandemic also played a part, causing a surge in online shopping – which has since waned – as the masses steered clear of physical stores. That meant more returns, and the Covid-19 disruptions created a glut of inventory in categories such as clothing, which should increase discounts and the ability for shoppers to return goods when they see better deals. .
A volatile economic environment this Christmas shopping season has added to the pressure.
According to Amit Sharma, CEO and founder of Narvar, consumers who experience the highest inflation in four decades are more frugal, which increases the chances that they will question a purchase and return it. Higher transport, energy and labor costs have made returns even more expensive, raising the stakes for chains to change behavior.
“That’s the big question: how do you reset expectations?” said Sharma, who previously held executive positions at Apple and Walmart. “Everyone loses money on shipping and returns.”
Online retailers realized early on that they had to earn shoppers’ trust before they handed over their credit card number to a website and bought a product they hadn’t seen in person. Free returns have helped put consumers at ease. Footwear retailer Zappos, now owned by Amazon, was an early adopter. It allowed customers to order multiple sizes and return what didn’t fit at no additional cost.
The industry has followed suit, and it will now be difficult to wean the masses off free returns. The practice of buying multiple items online to try on at home – now known as bracketing – increased during the pandemic when fitting rooms were closed. About two-thirds of U.S. shoppers engage in the practice, according to a survey this year by Narvar.
Social media platforms such as TikTok and YouTube have made bracketing more popular with so-called “trial ride” videos where subscribers are asked whether the buyer should keep or return their purchased items.
Return fraud, with tactics such as returning a counterfeit item, is also on the rise. In the United States, about 10% of the $761 billion in returns made on all purchases last year were fraudulent, according to a study by the National Retail Federation, an industry group. And online shopping has a higher rate of return at nearly 21%, up from 18.1% in 2020.
Retailers increasingly view returns as a threat to their business. ThredUp recently said return rates were increasing, resulting in a $3 million drop in sales in its most recent quarter. And the online resale platform charges $1.99 for what it calls a “restocking fee” if a customer returns an item.
Earlier this year, London-based Asos slashed its full-year forecast, saying a significant rise in yields in the UK and Europe hurt sales. He added that rising yields coupled with inflation had a “disproportionate impact on profitability”, but said he would maintain free returns for customers.
Chains employ a multitude of tactics to reduce the financial blow. Some shorten the time a buyer has to return an item. Bath & Body Works said it would not allow the return or exchange of products showing “excess wear”, a notable change in the personal care brand that allowed customers to return used products.
One approach taken with low-value products by retailers such as Amazon and Target is to refund a return, but let the customer keep the item. In this case, the retailer calculates that they will save money to avoid the costly process of trying to resell a returned good. It’s a strategy that is catching on, with the number of merchants using the tactic jumping 1,700% in the first half of 2022, according to Narvar.
Of course, these tactics fail to address the main reason why so many online purchases are returned: form. The industry has tried to use technologies such as augmented reality to help shoppers make better choices with virtual fitting rooms, but these tools have not been widely adopted despite significant investment.
“Size is a big problem to solve in e-commerce, especially with apparel,” said Katia Walsh, director of strategy and artificial intelligence at Levi Strauss & Co. businesses need to resolve, and we’re doing our best to do that.
By Allison Smith and Katie Linsell