“Free returns became almost a must-have factor during the pandemic with the rapid increase in consumers shopping online […] But times are changing and retailers are now facing a perfect storm,” Jana Bowden, a professor of marketing and consumer behaviour at Macquarie University, told Inside Retail.
A growing problem
Estimates of the proportion of e-commerce purchases that are sent back range from 20-30 per cent. And with global e-commerce sales projected to hit US$4.9 trillion ($6.8 trillion) by 2023, the volume is only set to increase.
Returns are already on the rise in the US, where 20.8 per cent of all goods purchased online were returned in 2021, compared with 18.1 per cent in 2020, National Retail Federation data shows.
These numbers represent a significant financial cost for retailers. Supply-chain consultancy TMX estimates that it costs six times as much to take a product back, run a quality inspection, repackage it and repick it for sale, as it does to send it to the customer initially.
There’s also an enormous environmental cost, not only due to the greenhouse-gas emissions from sending items back-and-forth to multiple customers, but also because many returned items ultimately end up in landfill.
The Australasian Circular Textile Association states that 30 per cent of items that are sent back to retailers can’t be resold.
More retailers will follow suit
For all of these reasons, industry experts agree that Zara is just the tip of the iceberg and more retailers will start charging for online returns going forward.
“I think we’ll see more online retailers charging for returns,” Jamie Cairns, chief strategy officer at Fluent Commerce, told Inside Retail.
“In the US, many large merchants such as Amazon, Target, and Walmart, often let customers keep low-price items they want to return if the transit cost eliminates any profit. Those companies use algorithms to determine qualifying goods.”
While consumers might see free returns as a right, retailers see them as a margin killer, Bowden said.
“The decision to charge for returns is a commercial one and more retailers will follow suit because retailers are having to get back to basics with a focus on profitability and sustainability,” she said.
However, the decision isn’t without risk.
“Will consumers like having to pay for returns? No, they won’t,” Bowden acknowledged. “Some consumers will leave their brands if there is extra to pay, but many won’t, especially if charging for returns becomes normalised again, like it was pre-pandemic. It’s just a question of resetting consumer expectations.”
Addressing the root cause
But while charging for returns might make the problem more manageable for retailers, it fails to address the underlying issue.
“What we need to be thinking about as an industry is why products are being returned so much and how we can reduce that,” Jason Pallant, a senior lecturer in marketing at Swinburne University of Technology, told Inside Retail.
There are many reasons consumers return so many items they buy online; an estimated 10 per cent of shoppers keep the tags on products they buy, so they can wear them and return them later. Bowden refers to this as “the dark side of shopping”.
But Pallant believes the main reason boils down to a lack of trust. Many consumers order the same item in multiple sizes and colours, so they can try on all the options at home, and return the ones that don’t fit or they don’t like.
“Retailers could be a lot better, and they are getting better, but there’s still an opportunity to make online shopping more accurate, around how something fits, how it looks, or how it will feel,” he said.
“That’s where some of our research around augmented reality [AR] has been focused. Can we actually help consumers make a better purchase decision and, therefore, not need to get multiple sizes and make a return, because they know it will fit?”
Technological solutions to the online fit problem have been around for years. Many leading online retailers use an algorithm to recommend sizes based on other brands that fit the customer well. Some even allow shoppers to create custom avatars with their specific measurements. But none of these solutions seem to have made a meaningful dent in the online returns problem.
“Part of the issue is that there’s been really haphazard application across retailers. Some are doing measurements, some are doing avatars, some are doing AR,” Pallant explained.
“We haven’t experimented with what’s the best approach, and we haven’t given consumers the opportunity to get comfortable with those forms of shopping.”
He would like to see further research into the most effective tools, and consistent uptake by retailers. He would also like to see more creative ways of dealing with returns.
“Rather than returning a product to a warehouse, or having to go through the entire redistribution channel, can we think about it more as a rerouting system? If I’m returning something that you were looking for, is there a service that could match us up?” he suggested.
Whatever solution the industry lands on, the returns problem will never go away entirely, but retailers could be doing a lot more to reduce it.