By Martina Maria Vernazza Newton, Nextail Sustainability & Impact Intern
A measure with mixed reviews
Recently, several major retailers have announced that they will now be charging for the return of products ordered online – something that, until now, many customers have enjoyed for free.
The change in return policies has been met with mixed feelings. A few applauded it, saying it would nudge consumers toward more mindful consumption habits. Joaquin Villalba , Nextail CEO & Co-Founder, says “ From my point of view, free home returns act like a subsidy that doesn’t create the right consumer behaviors. We can better align incentives by making consumers aware that home returns have an additional cost for the organization, the planet and their pocket.”
On the other side, many consumers complained over social networks, threatening to stop buying from brands taking these measures. This is important to keep in mind because easy shopping experience (shopping, check out, returns) is one of the main topics that keeps consumers loyal to their favorite product brands,
But what’s the reality behind these changes?
E-commerce boom leads to a returns boom
Over the last few years, the pandemic boosted e-commerce penetration in the retail industry and, therefore, returns. In fact, the rate of returns of garments purchased online has grown to 35% in the last two years.
Frictions across the online shopping journey, such as the lack of physical contact with products and difficult sizing determinations, has resulted in shopping behaviors such as purchasing multiple sizes to find the correct fit and returning the rest – especially when returns have come at no cost to customers.
In the 2000s, online shopping became ever more frictionless and the conditions in the fitting room became less desirable. Customers realized that it might just be better to order a few sizes on a retailer’s website and sort it out at home. In the face of this scenario, many retailers offer free shipping, free returns, and frequent discount codes, all of which promote more buying.
Free returns sounded great when the mission was to get customers comfortable shopping online. Now, more than two decades later, this practice has become a headache for retailers. The challenge of returns in the e-commerce market poses a dilemma for fashion companies engaged in the world of online commerce. Not only do they pose operational and environmental concerns, but according to a survey conducted by the financial company Klarna, 70% of consumers said they would never buy from a retailer that charged for returns.
Yet, retailers are pulling back free returns anyway. Will these numbers apply to reality? Experts like IBM suspect that the number of brands making such changes in their policies will increase and 57% of consumers will be willing to pay for it to help reduce negative environmental impact.
Ecommerce returns: a growing retail pain point, worse when they’re free
A source of new and growing operational and environmental challenges
E-commerce returns are a headache to retailers for many reasons: Operating costs have risen significantly in the past years as online sales overall rose dramatically because of COVID-19, logistics companies have raised their rates to deal with surging volumes, and affects purchasing and demand forecasting considering retailers can’t have pre visibility and transparency about how many products will consumers really buy and don’t return.
Home-based returns create another issue in that they usually take way longer to process than in-store returns. During that additional processing time in-transit, units are not available to other customers and, consequently, brands tend to increase their inventory levels to keep the same level of in-store product availability. To do so of course, requires the use of more textiles for extra production and transportation of these extra goods.
Returns that do not go directly to stores also have a negative impact on the predictability of sales, especially for points of sale that have not yet implemented intelligent, bottom-up inventory management solutions that are able to automate decisions and apply hyper-local forecasting for full in-season flexibility.
In order to meet availability at all times, especially when you are anticipating that some garments will be temporarily “lost”, retailers are tending to buy more stock at the beginning of the season and probably have more units than expected at the end of the season: two scenarios with high environmental and economic impacts.
Let’s not forget that waste is one of the major problems facing the textile industry, as an estimated 85% of all textiles go to a landfill and burn out every year, according to the World Economic Forum.
In this way, the policy change seeks to mitigate the numerous and negative environmental costs of returns in terms of logistics and transportation: pollution, noise, transport infrastructure that occupies urban space, and high costs.
Finally in 2022, there seems to be a consensus that free returns are not economically sustainable and it is time to change online return policies. In this context, many brands are starting to change their return policies at the risk of facing consequences.
Major brands are doing away with free online returns
In the UK, Uniqlo items purchased on and after March 2021 have a £2.95 shipping fee applied to all online returns. While in the US, customers who have purchased online can pay a $7 fee to use their prepaid shipping label (you can bundle multiple returns into a single package, paying only a single $7 fee) or return the item in-store.
Recently, Zara has decided to take the first step towards a more agile, efficient and environmentally responsible returns system by charging customers to return online purchases by mail.
The new Zara measure means that only returns from the consumer’s home or through a collection point managed by a third party are charged, while traditional returns made directly through one of the chain’s official stores remain free of cost. This demonstrates how the collection of returns, logistically speaking, is much more efficient in the stores and is therefore exempt.
The project started as a pilot test and has been rolled out in up to 30 markets. It is already in force in Germany and the United Kingdom, where users must pay £1.95 for each returned unit of their purchases made through the online channel. This is an amount that will be deducted directly from the money of the returned garments.
Will charging for online returns make brands and consumers consume more responsibly?
Like the bag fee when making a purchase, this is a policy with logistical, economic and environmental implications that will be a game changer in terms of sustainability, forcing companies and shoppers to practice more responsible consumption.
Whether consumers currently recognize it or not, this policy will ultimately benefit them by:
- Driving more responsible consumer behaviors, a key point in forcing brands to have more sustainable practices.
Partly as a result of consumption patterns, society and business are confronted with a confluence of factors that point to a new way of doing business. Like all changes, the beginning involves turbulence. Fashion retailers know that charging for online returns is not good news to consumers and in the beginning will notice resistance, but is a great opportunity to force customers to buy more consciously and create awareness that returns have multiple costs for both organizations and the planet.
The power for the textile industry to have more sustainable and environmentally friendly practices is not only the responsibility of the companies, but also of the society that consumes their products.
- Creating more momentum for the development of truly hybrid experiences
Now more than ever retailers are aware that fashion is more than buying products, it is an experience and a way of leaving life. Customer loyalty is alive and well but digital disruption and new generational influences show that the nature of loyalty is changing.
In consequence, fashion brands like Zara, H&M, Nike, C&A and Top Shop are focus in developing hybrid experiences that will reduce frictions in both physical (e.g. reserve fitting rooms, coffee shops inside locals, customized products) and online shopping experiences (e.g. better sizing technology, 3D virtual models, renting options ).
- Improving product availability by encouraging in-store returns
Unfortunately In-store experiences are often affected by not finding stock or the size the customer needs, and this predictability is affected by the large number of returns.
With charging for online returns and promoting in-store returns retailers can avoid the long processing cycles and have more products available faster, and also avoid the extra production necessary to fill a 1-2 week availability gap.
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