What’s trending?
Retailers are increasingly reassessing their ecommerce return policies in an effort to reduce costs and run their businesses along environmentally-friendly lines, while not sabotaging sales.
The ecommerce boom has slowed since the pandemic but consumers have grown accustomed to fitting rooms in their homes instead of in-store dressing rooms. Consumers are more likely to buy multiple sizes/options (a phenomenon known as ‘bracketing’), if they know they can easily return the items they don’t want – usually free of charge. At the same time, consumers’ expectations around free returns have shifted due to environmental concerns: they are now asking for more transparency on the sustainability of the return process. A recent study from Cycleon, a reverse logistics group, found that 64% of US consumers are willing to pay extra when returning a parcel to subsidise greener carrier options.
Companies are responding accordingly. Post-purchase logistics company Narvar estimated that 41% of retailers charged some sort of fee for returns in 2022, an increase from 33% the previous year. In 2022, Zara in the UK started charging a fee of £1.95 (R47) to return merchandise bought online. In 2023, H&M in the UK announced it would charge a similar amount, £1.99, to take back items not damaged or faulty. Some retailers are also experimenting with approaches that reduce the need to return items in the first place.
Why is it important?
Ecommerce returns totaled $203.22 billion in 2022 in the US and by 2029, the global reverse logistics market is expected to exceed $954 billion. High return rates lead to financial losses for retailers. They are no longer just a cost of doing business but have become a significant cost centre, maybe even averaging 21% of the order value. The costs include getting the item back, inspecting it, refurbishing and restocking it, potentially even liquidating or scrapping the item which generates billions of kilograms of trash ending up in landfills. According to a report from Optoro, in 2020 in the US the process of shipping returned items led to 16 million metric tonnes of carbon dioxide (CO2) emissions. Returns offer consumers convenience but the detrimental environmental impact is hard to ignore.
The returns phenomenon does not just affect retailers: it has created a shadow economy of sorts. Entire new businesses have sprung up or expanded to deal with this phenomenon – cleaners who revive the returned clothes, delivery drivers to carry the goods, warehouse workers, seamstresses, packaging manufacturers and waste management companies.
What can businesses do about it?
The solution to this challenge is not binary i.e. charge for returns or not. The reality is a lot more complex and retailers have many options. Armed with more and richer data, retailers need to insert different levels of friction into the returns experience, ranging from free to refusing a refund. All things considered, it comes down to whether the customer is happy. Disappointed consumers are likely to take to social media over a poor return experience.
One option is to handle returns in the most efficient, cost-effective and sustainable way possible. Examples of how to do this include:
- Drop-off points at other retail partners: In the US Amazon allows customers to return items purchased on its website at Whole Foods grocery stores and department store Kohl’s.
- Curbside returns: Walmart is encouraging customers to make curbside returns: returning unwanted purchases as part of its Drive Up service.
- Repair or recycle: Advanced Clothing Solutions is a 25-year-old Scottish clothing rental company that repairs and resells returned clothes for high street brands.
- Data driven returns policies: Luxury e-tailer Mytheresa which ships to over 130 countries has developed in-house technology to identify higher-spending customers who shop more frequently and return less. These customers are offered better return options.
- Premium membership: Some retailers, including H&M, have started introducing premium membership options whereby, for a yearly fee, consumers receive free delivery and returns on all orders.
- Smart lockers: Pudo is a local example. There are approximately 1110 Pudo locker locations nationwide. The consumer selects a location near them and the retailer delivers the package there.
Another option is to proactively limit exposure to returns and related fraud and abuse before an item is even sold. Examples of this include:
- Use technology to envision the product: Help potential buyers figure out what the item will look like on them or in their homes before making a purchase. Furniture viewing AR technology has been around for a while and clothing applications are now becoming popular. Ronen Luzon, CEO and founder of sizing technology company MySizeID said “We have seen retailers who use our technology reduce returns by between 30% and 60%, including Levi’s, which saw reductions of 47%.”
- Increasing the minimum spend threshold: Currently, minimum spend allows for free delivery. This could be further increased to discourage returns.
- Provide more detailed information: Aside from sizing, invest in better product descriptions, higher quality images and videos, colour fidelity and customer reviews. The more accurate and realistic the visuals, the more likely the consumer is to make a better purchase. Louise Barry, mobile user experience and conversion specialist at Google said, “We recently helped one European fashion retailer reduce returns by 8%” through providing more detailed information.
- Try-before-you-buy: This is where customers are able to order multiple items before deciding what to keep and only paying thereafter. Prime Try Before You Buy is one such programme. You have seven days to try items at home and you’ll only be charged for what you keep.
- Nudge behavioural change: “Our eco-choice feature in our returns portal is designed to nudge consumer behaviour. It allows consumers to see which is the most sustainable option for their product return,” said Inge Baars, sustainability manager at global product returns management specialist Cycleon.
It’s time to rethink unconditional free returns. Online returns are inevitable but there are tools and providers popping up to help retailers address this challenge. The question is how the market responds and whether retailers save more than they lose through these fees.
By Flux Trends
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