Is This the Beginning of the End for Free Returns?
For much of the last two decades, online retailers have competed to offer cheaper, more convenient shopping experiences. What happens when one of the world’s biggest apparel sellers bucks the trend?
This week, the BBC reported that Zara had earlier this month begun charging UK customers £1.95 ($2.44) to return online purchases by mail. The policy — already in place in 37 other countries — doesn’t apply to online orders returned in stores.
Outraged shoppers took to social media to complain. Some told horror stories about long queues and slow service when they attempted to bring items back to Zara’s stores. Others argued that Zara should improve its sizing and fits if they were going to charge for returns. A few applauded the new policy, saying it would nudge consumers toward more mindful consumption habits (the retailer said that it had begun charging for some returns in an effort to reduce its carbon footprint).
The environmental case for Zara’s switch is iffy — a delivery van picking up multiple returns will likely generate fewer emissions than individual customers driving to stores to avoid the fee, Deutsche Bank analysts wrote in a research note this week.
The economic case is clearer.
Online shopping, which boomed over the pandemic, has a much higher rate of customer returns than in-store purchases. Shipping and processing returned items create mounting logistical costs, as well as carbon emissions. Still, retailers fear turning back the clock now that many shoppers have become accustomed to free and easy returns: in a 2021 survey by the payments firm Klarna, 57 percent of respondents said they would never buy from a retailer that charged for returns.
But some companies are looking to dial back these expensive perks that attracted shoppers during the pandemic. In October and November 2021, just under 40 percent of retailers said they charge for mailed returns, while about 2 percent planned to incur charges over the holiday period and 19 percent were undecided on what measures they would take, according to a survey by Appriss Retail and the US National Retail Federation.
Online returns “have been abused, and are more costly [not only] in terms of the logistical cost, but in terms of the environment as well,” said Joaquin Villalba, chief executive of retail analytics firm Nextail Labs, which counts River Island and Guess among its clients. He is also a former head of Zara-owner Inditex’s European logistics operations.
Zara is by no means the first retailer to charge for returns — in the UK, Uniqlo and Next charge customers for returning products via parcel shops or home collection. Retail experts suspect it will not be the last, especially if consumers prove more willing to pay the fee than they have indicated in surveys.
The Burden of Returns
E-commerce returns have always posed a logistical headache to retailers, but the costs have risen significantly in the past two years, as online sales overall rose dramatically and parcel carriers raised their rates to deal with surging volumes. In January, UPS said it would handle a record 60 million returns following on from the holiday season, 10 percent higher than the year prior. At the beginning of the year, shipping company Fedex increased average prices by 5.9 percent.
As consumers buy fewer stretchy sweatpants and more party dresses, those costs will only continue to rise. At Revolve, 54 percent of orders were returned, the highest rate in at least two years, according to Cowen. In its full-year results reported earlier this month, Boohoo recorded a return rate of 33.7 percent in its core UK market, up nearly 10 percentage points from the year prior.
“Returns are a big mess, especially in the fashion space … [and] always a profitability drain for brands,” said Balaji Santhanam, associate partner covering consumer goods, retail and logistics at consultancy Infosys.
Online shopping bears a prodigious environmental cost as well, from packaging to the millions of home deliveries. The bulk of the fashion industry’s environmental impact takes place in manufacturing, however. Carbon emissions associated with returns are minimal in comparison.
Cutting overproduction, or the volume of clothes discounted at end of season, from 40 percent to 30 percent every year could save 158 million tonnes of carbon emissions, according to a 2020 report by McKinsey and Global Fashion Agenda. Reducing an e-commerce return rate from 35 percent to 15 percent, meanwhile, could save 12 million tonnes of greenhouse gas emissions per year, the report found.
Formulating the Best Policy
Whatever the motivation, charging for online returns will no doubt reduce the number of orders sent back. Incentivising in-store returns, which immediately puts products back in circulation, can also prevent waste, said Santhanam.
Other tactics include improving product pages and virtual sizing technology, or letting customers know about fit and styling advice if they start to add multiple sizes of the same item to their online cart. Some retailers offer repair and alteration services, hoping some minor adjustments to fit will ward off some returns. Ganni, for example, partnered with London-based tailoring app Sojo in November last year to offer on-demand alterations (this service isn’t limited to brands selling $400 dresses; Uniqlo also offers in-store tailoring).
Consumer psychologist Kate Nightingale also argues that, counterintuitive as it may seem, brands could benefit from adding a little more friction to the customer’s online shopping journey. Instead of constantly pushing new product, they could provide personalised styling tips for customers’ older purchases, thereby reducing the number of impulse buys that ultimately get returned.
“It’s more about a long-term mentality change,” she said. “It’s a big ask, because it [involves] a lot of permutations, but imagine the savings in returns that could make, without charging the customer.”