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E-commerce boom leads to a returns boom Ecommerce returns: a retail pain point Major brands are doing away with free online returns Will charging for returns create responsible consumption?Author
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 and increased sustainability in fashion.
Joaquin Villalba, Nextail Co-Founder, commented,“ 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 hand, 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 primary reasons consumers stay loyal to their favorite product brands.
But what’s the reality behind these changes?
The pandemic boosted e-commerce penetration in the retail industry and, therefore, returns.
Frictions across the online shopping journey, such as the lack of physical contact with products and difficult sizing determinations, have 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, 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.
E-commerce returns are a headache 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 merchandise planning 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.
siness forward in shaping future strategy.
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.
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 in fashion, forcing companies and shoppers to practice more responsible consumption.
Whether consumers currently recognize it or not, this policy will ultimately benefit them by:
Senior leaders may be concerned with how bringing in a new inventory system may disrupt how they’re used to getting the answers the way they’re used to about the price tag attached to the technology.
Key to getting leadership buy in, Mark points out, isn’t just about promising a sales lift or potential cost savings. It’s often about painting a bigger picture in which the business would finally be able to make better, faster decisions at scale with a technology that could cover ground a human team couldn’t without losing precision.
He said that in his experience, “We focused on the bigger picture. The value wasn’t about reducing headcount,” he explains. “It was about improving the businesses’ ability to make smart, timely decisions across all store-SKU combinations.”
What can also help seal the deal is reassurance. Leadership teams may gain confidence in seeing that more and more high-volume, high-complexity retailers are already walking this path and are thriving.
Afterall, as Mark says, “CEOs can be hesitant to be the first customer. They want to know who else is using it. Are they a similar kind of retailer? Have they had similar growth challenges? Do I know someone I can call and ask?”.
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 focused on developing hybrid experiences that will reduce friction in both physical (e.g. reserve fitting rooms, coffee shops inside larger businesses, customized products) and online shopping experiences (e.g. better sizing technology, 3D virtual models, renting options).
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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