Are free returns a good way to drive online sales?

Photo: Zappos
Mar 09, 2017
Peter Sobotta

Through a special arrangement, presented here for discussion is a summary of a current article from Return Logic’s blog.

They didn’t invent it, but Zappos is widely credited with using a free product return policy to drive online sales. The idea: customers are more confident making purchases if they know they’re not locked in.

Yet retailers are as wary about free returns as consumers are enthusiastic. There are both pros and cons to how free returns impact retailers:

Pro: Academic research finds free returns pay. A study at Washington and Lee University found that after a free-return shipping policy was instituted at two retailers, average spending per customer increased by $620 over two years for one and $2,500 for the other. When customers had to pay for shipping, their purchases fell between 74 and 100 percent.

Con: Results may vary. These are big ranges and retailers differ in their value propositions.

Pro: Customers love it. A JDA Software survey found 62 percent of consumers are frustrated when asked to pay for return postage and packaging.

Con: Free returns cost a lot. Retailers switching from fee-based to free returns will take a short-term hit to the bottom line. Those that fail to project these costs correctly or know how they are going to cover them could run into trouble quickly.

Pro: Your competitors are doing it. A National Retail Federation study found that about 59 percent of retailers currently offer free return shipping. Those numbers grow during the holiday shopping season.

Con: Consumers will take advantage. Free returns can encourage unwanted consumer behavior, such as wearing an item once and returning it, ordering many options and keeping only one, or ordering on a whim without serious intent to keep the item.

Pro: It’s not an either-or. Retailers can create limited-time free return events, restrict free returns to certain categories, offer it only to loyalty club members, or a combination of these and other limitations.

DISCUSSION QUESTIONS: Are you generally for or against free return shipping policies? Would you add any safeguards or steps to help mitigate downside risks?

Please practice The RetailWire Golden Rule when submitting your comments.
"Customers enjoy the flexibility of shopping online until they get what they want. It’s not going away."
"There is an expense associated with this policy but it needs to be considered a cost of doing business."
"Where, oh where, will it end? The consumer is in charge and retailers are having to jump through hoops to satisfy them … and at what a cost?"

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22 Comments on "Are free returns a good way to drive online sales?"

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Bob Phibbs

The most telling words in this article are: Results may vary. Last week it was cited that 90 percent of retailers lose money trying to be omnichannel. Amazon reported they lost $7 billion on free shipping last year. Just because everyone else is doing it doesn’t mean it makes sense.

Many retailers have suddenly gone out of business who embraced these as “necessary to compete.” With online returns pegged at about 30 percent how in the world more retailers aren’t focusing on the 74 percent who still shop in a store and maximizing that through retail sales training where returns run less than 5 percent baffles me.

But then again people were touting that RadioShack could have a second life as well.

Max Goldberg

For all of the reasons stated above, free returns make sense. Consumers want them and, if they are not offered by a retailer, the competition is just a click away. Retailers need to figure free returns into their budgets and plan accordingly.

Mark Ryski

As a consumer, I love it; as an advisor to retailers, I know it’s a profit killer. It’s no surprise consumers love free returns, but that doesn’t mean it makes business sense — even if it has become the price to play in online retailing. Retailers need to take a very hard look at profitability on sales related to their returns/shipping policy and think carefully about how they implement it or modify it.

Brandon Rael
Free returns and an expectation of a friction-less experience have become the gold standard for not only pure play e-commerce brands, but also any retailer hoping to compete in an omnichannel, commerce-anywhere, digitally-connected world. Retail product returns (or reverse logistics), while they at the surface appear to be a minor part of the customer experience, are in all actuality a crucial component of the overall relationship between the consumer and retailer. In the not so distant past, returns were perceived as a bad thing. However, the process needs to be at the top of the priority list for retailers to improve the long-term relationship with their customers. In retail, reverse logistics and returns used to be viewed as a waste, however they are all part of the value a retailer provides to consumers. Here are several steps retailers can take to leverage the opportunity that returns present: Analyze data to identify products with high return rates; Proactively work to reduce return rates by making necessary adjustments (e.g. improve online product information pages); Improve forecasting of… Read more »
Peter Sobotta

Good points Brandon. Retailers that do not view returns management as a core competency are at a significant disadvantage. As a result, their bottom line suffers.

Dick Seesel

Free return shipping (along with a liberal return policy) is a way to reassure the e-commerce customer that it’s worth the risk to shop at your website. Especially for categories like shoes, where the fit will vary from brand to brand, the e-commerce retailer will want consumers to try multiple sizes at the risk of returning one … it helps close the sale on at least the right-fitting pair.

Most importantly, in our “omnichannel” world brick-and-mortar stores don’t generally charge consumers for returns, so why should their e-commerce counterparts? (At least that’s what the customer expects.) Yes there is an expense associated with this policy but it needs to be considered a cost of doing business, just as a brick-and-mortar retailer has to pay rent and utilities.

Anne Howe

For buying things that need to fit well, Zappos is the best for the very reason that shoppers can order two and send back the one that’s not the best fit. It’s a HUGE convenience and also broadcasts caring and love to the shopper. This is a company that truly lives and embodies its values. That in itself mitigates downside risks.

Ben Ball

I was going to write about how my spouse uses the free returns feature for Zappos and others for categories like clothes and shoes where fit and “trying it on” are so important. Now I don’t have to. 😉

Until the “virtual dressing room” (complete with accurate sizing) becomes a reality, the liberal returns policy is going to be a must for retailers in these categories.

Peter Sobotta

At least until apparel retailers fix the size and fit problem. At which point a liberal returns policy would be far less painful.

Returns happen because retailers fail to meet the expectations of the customer. It could be quality, it could be price, it could be damage, it could be anything. But it is almost always the fault of the retailer. Once this issue is addressed, return rates drop significantly.

It is the ultimate test of how customer centric a retailer is. No faking it.

Shep Hyken

I’ll take this from the consumer’s view. Free returns boost my confidence. They make me feel comfortable with a purchase of something I haven’t seen yet. So, it works for me.

Does it work for the retailer? Well, it seems to be working for Zappos. Every company must know its numbers. They must be able to factor in costs of sales (and returns). So the cost of the return must be factored into the margin of the product. It’s that simple — Retail 101.

Adrian Weidmann

I observe my 21-year old “digital native” daughter shop. She does extensive research online for 90 percent of her apparel and shoe selection and purchase. Her primary selection criteria during the online search process is whether the online retailer (or brand) offers free returns. If not, the retailer is not even considered. I realize this is a sample of one but for her, it is a mandatory requirement.

Tony Orlando

Another free option that costs retailers big bucks. Of course customers want free returns, and they expect it. They also want free health care, free child care, free college tuition, free housing and everything else, so what else is new? The only way it can work is if the price of the goods have a built-in allowance for this, or it will be a money loser. The problem with building in the cost is that the consumer will shop around until they find the rock-bottom price on the item, along with free shipping and returns, and the retailer will still lose out on the deal. It is simply insane today with online shopping, and online retail isn’t for the weak or underfunded businesses, as they will get destroyed by the big players. Lots of fun in retail today isn’t it?

Joan Treistman

I agree that free returns have become a cost of doing business. It’s incumbent on the retailer to analyze sales and returns to determine how to minimize returns. Customers enjoy the flexibility of shopping online until they get what they want. It’s not going away. So learning how to work with it, strategize to reduce its ultimate cost and leverage its attraction makes sense to me.

Ricardo Belmar

Like with so many retail technology questions — the answer is, it varies. And it varies for a number of reasons, not the least of which is, what category of merchandise are you selling? Consumers want free returns. Period. Does it make sense for ALL retailers to offer it to stay competitive? Not necessarily. This is about perceived value by the customer. If the customer perceives your brand as having more value for their shopping experience then you might not need free returns. You have to know who your customers are to make this decision.

Ed Rosenbaum

A free return policy can be that single point in deciding to purchase or not and who to purchase from. If one company offers it and another doesn’t, there is no question who will get the business. It is a cost of doing business that is not going away anytime soon.

Lee Kent

Where, oh where, will it end? The consumer is in charge and retailers are having to jump through hoops to satisfy them … and at what a cost? Sure maybe Zappos made it work for them. They picked up market share with their policy, but with other retailers jumping on board will they retain it? We’ll have to see.

I am not sure what the answer is but retailers simply can’t keep on operating like this. They are losing money from many directions because of consumer demands and not every retailer has an AWS to prop them up.

I am still of the opinion that the answer lies somewhere in being more transparent, but for this one we need to keep our thinking caps on. And that’s my 2 cents.

Tom Redd

No major return logic here. Smart apparel-related retailers know that this is a must feature of their web site. Return to store can be cheaper and it works. There will always be abusers of any free feature, but online apparel free returns can generate more sales and stronger customer relations via learning more about tastes and sizing of buyers. More data can equal more sales and higher margins — if you manage it and leverage the data.

Anna Tolmach

I think the unfortunate reality is that free returns are here to stay. However, there is hope because humans are extremely incentive driven. Right now, there is no incentive for me not to buy 3 different colors in two different sizes. However, maybe if I knew that if I kept the majority of my purchase I’d get a gift card or a discount or some other small incentive, I wouldn’t engage in bad behavior. Many consumers buy with the assumption that they will return most of their online purchase, but brands can’t plan/operate that way. That’s why finding a creative fix is really important.

Scott Magids
3 years 2 months ago

The Zappos example shows us that having a free return shipping policy, despite the expense, is a net positive. In offering this policy along with its other consumer-friendly practices, Zappos has gone far beyond being merely a retailer that sells shoes and clothing. Zappos customers are extremely loyal and have an emotional connection with the brand, and this is one important way this online retailer has encouraged that connection. Shipping and free returns increasingly are just a cost of doing business online, just as physical store infrastructure is a cost of doing business in the brick-and-mortar world.

Craig Sundstrom

To a point, yes: certainly normal rules such as defective merchandise, sizes not fitting, etc. (though too much of either of these is a red flag of either quality control or mis-marketing). But as a general no-questions-asked or I-bought-it-last-month-but-now-it’s-cheaper-somewhere-else, then no. This will no doubt lose sales, but those are the kind of sales you SHOULD lose … no business can stay in business being a doormat. How to decide where lies the line between “reasonable” and “unreasonable” return reasons? Well, that’s where the part of being a good merchant kicks in.

Kai Clarke

Free shipping on returns are an essential part of modern retailing. Ask Amazon. Free shipping on returns reflect confidence in the consumer, and in-return, the consumer’s confidence in the retailer. Modern online retailing builds the cost of returns into their model and finds that the benefits far outweigh the costs.

Di Di Chan

The goal should not be satisfying every customer with VIP treatment of free shipping both ways — that’s not sustainable.
The goal should be winning loyal shoppers and reward the VIP customers with a differentiated shopping experience. Amazon has a good model here: yearly subscription fee (Prime Member) with the option of free shipping. It builds loyalty (Consumer Intelligence Research estimates that there are about 63 million prime members as of 2016), and it gives their best customers the instant gratification of free shipping. The win-win scenarios will be the most successful models.

"Customers enjoy the flexibility of shopping online until they get what they want. It’s not going away."
"There is an expense associated with this policy but it needs to be considered a cost of doing business."
"Where, oh where, will it end? The consumer is in charge and retailers are having to jump through hoops to satisfy them … and at what a cost?"

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