Photo: RetailWire
Is it time to shut down the free returns party?
Retailers are shortening their returns windows and even charging return fees to mitigate rising costs.
According to reports from The Wall Street Journal and CNBC:
- The Gap Inc. in June shortened the return window for its Athleta, Gap, Banana Republic and Old Navy brands from 45 to 30 days. J.Crew halved its return window from 60 to 30 days.
- Zara, J.Crew, JCPenney, Abercrombie & Fitch, Anthropologie, REI and LL Bean are among those charging from $3.50 to $8.00 for mailed returns.
Consumers grew more accustomed to using their homes as dressing rooms during the COVID-19 shutdowns. The National Retail Federation reported that 16.6 percent of U.S. retail sales were returned in 2021 and online return rates were at 20.8 percent.
Returns are costly as only 48 percent of returns can be resold at full price, according to Gartner research. Higher labor, shipping and storage expenses are all increasing return costs this year.
“Charging for returns is one way to cover a portion of that cost,” Erin Halka, senior director at Blue Yonder, told CNBC. “It also can deter customers from overbuying, since at least 10 percent of returned goods cannot be resold.”
“Everybody wanted to have, like, a superliberal return policy just to be competitive with e-commerce companies like Amazon and others,” Sucharita Kodali, an analyst at Forrester, told Marketplace. Now, with about 30 percent of apparel and shoes purchased online returned, “there’s a huge carbon footprint that’s associated with it, and that’s a huge cost” overall.
A recent PowerReviews study found free returns (76 percent) second only to free shipping (96 percent) as the top consideration factors when shopping online.
Retailers are still, however, extending return policies around holiday selling, and many chains offer 90-day returns on most items. Nordstrom is among the few without a time limit or restocking fee. Nordstrom writes on its website, “We will do our best to take care of customers and deal with them fairly; we ask that our customers treat us fairly as well. From time to time we may not accept a return. There are no time limits for returns or exchanges.”
- Good Luck Returning Your Unwanted Clothes and Electronics – The Wall Street Journal
- Free returns may soon be a thing of the past as retailers roll out stricter policies – CNBC
- Is the era of free returns for online purchases coming to an end? – Marketplace
- Narvar Research Finds Nearly 25% of Consumers Will Pay for Product Returns in Exchange for Convenience – Narvar Research
- New Inmar Intelligence Survey Reveals Divide Between Consumers And Sustainability In E-Commerce And Product Returns – Inmar Intelligence
- Inmar Intelligence Survey Reveals That Consumers Will Spend More And Wait Longer For Online Purchases That Offer Free Shipping – Inmar Intelligence
- Retail Returns Increased to $761 Billion in 2021 as a Result of Overall Sales Growth – National Retail Federation
- Returns — The Ticking Time Bomb of Multichannel Retailing – Gartner
- Consumer Survey: Returns in Retail in 2021 – PowerReviews
- Returns & Exchanges – Nordstrom
- L.L.Bean ends its famous ‘lifetime replacement’ guarantee – Retailwire
Discussion Questions
DISCUSSION QUESTIONS: Are free return policies becoming too costly? Is shortening return windows, charging return fees or some other methods the best path to deter online overbuying without alienating customers?
Poll
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Technically, yes it is time to shut down free returns. Practically, it is extremely difficult to accomplish as consumers have come to expect free returns and diminishing that option causes annoyance and can lead to lost sales. Strategies such as reducing windows for returns are compromises, but still need to be enacted with care. Understanding why returns are made can also help. For example, if the issue is poor sizing then having more consistency across ranges can help; if colors or fabrics not being as expected is the cause, then better photography may help.
Returns are too costly, but it will be hard to close this Pandora’s box. For years, consumers have been trained to expect low cost or free returns and now it’s an expectation. At the same time, it was always a money loser and profit killer for most retailers. Something has got to give, and we’re seeing it now reflected in the changing returns policies and fees. Ultimately retailers need to make money, and I suspect that more retailers will jump on the “charging for returns” bandwagon.
Like free shipping promos, I think free returns are going to be hard to shake – while retailers definitely want to save on these costs and even work to prevent the things like “bracketing” and “webrooming” that drive high returns in the first place, I can easily foresee offering free returns to loyalty customers or as a “surprise and delight” moment for a one-time high value shopper.
Great points Nikki! I like your idea of free returns to loyal customers or some other metric that measures that customers deserve the perk. Limiting returns to X amount in a year may also help prevent frequent abusers of free returns.
Returns are costly. Why would any retailer adopt these policies? To be competitive. It’s harder and harder to keep customers. Retailers are realizing they started an arms race around returns to show how customer-centric they are. Now they have to pull back. Will they? Since everyone is looking for a competitive edge, I expect that the market will determine the right balance between returns and revenue.
Traditional retailers have long struggled to keep up with the fast shipping and free returns baseline that Amazon created and consumers have been trained to expect. It’s going to be hard to walk that back after more than a decade of consumer habit, but it’s absolutely essential if e-commerce can hope to be profitable. Even a small fee creates mindfulness in the consumer that can coax shoppers into more environmental and cost sustainable actions. Combine this with a network of partners that offer convenient physical drop off points for returns and you have a powerful way to change consumer habits for the better.
Yes, returns are very costly but how do you change your customers’ expectations for free returns without severely affecting customer loyalty?
Free returns are a consumer “must-have” right behind free shipping. But the whole e-commerce house of cards has reached a breaking point as the costs climb to unsustainable levels and the waste threatens to overwhelm the system.
Returns are indeed vexing. Taking something away from shoppers is always a very risky proposition, but returns are really costly. Perhaps shorter free windows for all (e.g. two weeks to minimize out-of-season returns) and longer/always free returns based on loyalty status is a way to mitigate the risk?
Let us remember that the airlines changed the rules on accumulated mileage points for the same reason and they went from a standard 25,000 miles for a round-trip ticket to dynamic redemption. Can you find the pea now? Other loyalty programs subtly doubled the number of accumulated points required to redeem things. Who jumped ship then?
Free returns were probably one of the best ever customer acquisition tools. Shopping the internet exposed people to all kinds of brands and products that they weren’t familiar with. That lack of familiarity was quickly comforted with free returns. We blinked and here we are today, with a return rate and expense structure that is killing retail profitability. So absolutely there should be a fee for returns — a nominal fee that helps offset the obvious incremental expense while it will hopefully also dissuade people from over-buying. Nordstrom’s appeal for “fair,” in both directions is a great way to put it.
The economics of the concept will dictate the outcome of free returns. Retailers can and should drive towards no free returns. They can do this gradually until they get to where they can lose less money and reduce the above-mentioned carbon footprint created by the concept of free returns. As to losing customers, a retailer can lose customers over this policy only to those retailers that continue questionable policies of unquestioned returns, which is not sustainable.
Be careful what you wish for. The thought was that stores were a burden — so the more e-commerce the better. But DTC has always been fraught with returns. The catalog industry (remember that?) always had high apparel returns. So the question is, what does a retailer expect will be the outcome of charging for returns? People will certainly buy less, perhaps they’ll return less, or perhaps they’ll go to retailers with standard returns policies. They’re sure not going to head back to stores with their heads hung low.
Bad move.
They won’t like it, but retailers will have to eliminate the key reason for apparel returns — “mystery sizes.” The industry is going to have to come up with a new sizing protocol that provides transparency for consumers — and the sooner, the better.
The ability to bring returns back into the stores is essential. Maybe retailers need to offer one-time discounts to those making returns to encourage impulse shopping. As always, Amazon makes it tough to compete and forces other retailers to get creative in order to maintain healthy bottom lines.
For clothing brands, with notoriously high return rates, they need to get better at the sizing game. This alone will reduce returns by a massive amount. First, do something about the practice of buying multiple size runs and returning ones that don’t fit. But how does one do that? Body scans and measurements don’t seem to work. Maybe a better way would be to leverage user-generated content so shoppers could finally see what others actually look like when wearing the same size. Clothing retailers really need to focus on this returns problem to profitably compete. And let’s not forget about returns fraud. While it’s not a silver bullet, serialized RFID is one tool that retailers should consider as they work to reduce the high costs associated with returns that shouldn’t be returns in the first place.
Retailers have trained shoppers to order what they want and not worry about returning what they don’t want to keep. How do you punish shoppers for doing what you taught them to do?
Once you give customers a perk, like free shipping or free returns, it’s hard to walk that perk back without damaging the brand’s reputation.
As e-commerce sales continue to trend up as a percent of total, returns will always be a service and associated cost metric to manage through. You want to be fair with the customer and as Nordstrom so eloquently states “be fair with us.” Nah, the consumer or shopper is always right, and they will not hesitate to do what is in their best interests. Trying to compete with Amazon is a losing proposition in more ways than one. What you DO incorporate is “liberal” or friendly terms for best of best customers – offer no cost returns to your most valuable customers in order to satisfy and retain them. Offer adjusted fee returns for next best and so on. Free returns for a clearance buyer? No!
Yes, free return policies have led to exorbitant costs ($761 billion last year), as retailers already grapple with soaring expenses.
Consumers have come to expect free and hassle-free returns but it’s starting to look like the jig is up. Shorter return windows, return fees, BORIS strategies and virtual try-ons can deter overbuying and cut costs.
The best way to address the return challenge is to reduce the reason for returns in the first place. If it’s a sizing, color or variety issue, there are apps available and more being developed to measure body size more accurately and position products in intended locations. For wrong, mistimed or defective items, there are analytic tools that should be applied to lower the occasions for each. It’s a huge problem and at some point a retailer’s best shoppers are going to wake up to the fact that they are subsidizing others and getting less value as a result.
The race to free shipping + free returns has now come home to roost as it’s taking chunks out of margin for every retailer. Weaning consumers off this is going to be painful and may result in a slight downtrend in revenues. The free returns party is going to end with a big hangover.
If the cost of free returns is measured as a standalone item, the answer is and has been for some time yes. The problem is this measure does not take into consideration the loss of sales that a no return policy might create.
The issue for retailers is to find the balance between the time they allow returns to be made and what, if any, charges they apply. My expectation is that this answer will be heavily impacted by the items they are selling and their customer base.
Like the cat who tasted fresh tuna to never return to the canned version, free returns have become the fresh tuna equivalent for consumers. Retailers can consider options to mitigate the cost of free returns, e.g., shorter windows or minimum product costs eligible for returns, but the challenge will be to develop systems that minimize the need for consumers to return product, e.g., better online descriptions and customer matches. Shut down free returns at your own risk.
Customers use their personal criteria for going to particular retailers. Return policies are important to shoppers and can prohibit going to a retailer in the first place. There will be a loss in revenue for those retailers who create shopping barriers. Is that loss in revenue less than the cost of liberal return policies? I hope the retailers are doing the math.
This is the crux. Implementing more rigorous return policies, fees and barriers will yield a short-term bottom line improvement. The word “No” makes you feel in control of retail operations. Except the customer has a “No” vote too, and it’s often a long-term decision.
This topic keeps coming around. Every time a retailer makes a change to their policy it gets talked about. It is a major cost for retailers and there seem to be no silver bullets.
While some retailers make returns free and friction free it will remain a competitive tool. Amazon’s approach is amazing for consumers but raises a lot of questions about sustainability and profitability. In the UK the fashion and homewares retailer Next have an incredibly slick returns process – which tied to an incredible omnichannel selling approach acts as a huge differentiation tool.
Free returns have always been too costly. So it is good to see retailers now confronting the challenge. This is more critical now that it’s clear that most retailers aren’t going to grow through online sales. So while online sales are required, retailers shouldn’t be paying customers to take their goods that way.
Returns were never free. What do you think higher retail selling prices cover? Retailers intentionally or unintentionally decided to charge everyone with the cost of shipping. Shipping (to and from) was always a potential revenue line — or a discount candidate that had to be covered by other margins.
Are free returns really free? Or is it “no extra charge” for returns? It’s like free shipping. It’s not really free. It is built into the price of the item. The retailer needs to bake costs into their pricing. While raising the price – even just a percentage or two – may appear to cause price-sensitivity or competitive issues, if there is a strong service experience, the price will become less sensitive. Friendly and knowledgeable employees combined with processes and policies that are customer-friendly can help make price less relevant. In other words, make customers LOVE doing business with you.
Can you eliminate a table stake? Are you prepared for its top-line impact when you’re simultaneously protecting and pursuing market share? Applying the wrong levers to secure the bottom line can easily backfire at a time when competition for incremental revenue is fierce. Retailers look for ways to differentiate from the competition and attract new customers. While it appears a logical move in the short term, removing or complicating a prized consumer expectation is a surefire path to more significant problems down the line.
There are lots of reasons to reduce returns, especially costs and sustainability concerns. Retailers need to change the “always free” policy in order to remain financially viable. It can be done in stages, timeframes and by customer profile.
It is a box that is very difficult to close for most retailers, especially in the online space where people are now trained to buy things in different sizes and return the stuff later. You can’t have your cake and eat it too at this point. The way I would do it is start with the most steeply discounted items with big “no returns” signage and start educating your customers. Some people would say that would affect loyalty, I would argue those customers who are affected aren’t loyal in the first place, they are just bargain shopping. Brand loyalty is about lowering price sensitivity, not just driving sales.
I would caution against (over)generalizing: many retailers have always had sensible practices, but based on the (admittedly anecdotal) evidence we see here on RW, too many companies seem to lack either proper metrics to evaluate policies or discipline in enforcing them (or both). I think we’ll see a growth in restrictions, but it won’t be as much as some of us would like.
Maybe they need to do free returns, but you don’t receive the credit back to your credit card, rather, you receive it back in the form of a coupon or store credit (not gift card…) good on a future purchase you make and it has a short expiration window (say 60 days).
Consumers will buy less as these policies tighten. But things have reached a breaking point.
The changing consumer expectations around free returns will make it challenging to shift to a model that pushes the costs to customers. However, the rising operating costs, and razor-thin margins, have required retailers and brands to reevaluate their cost structure and change their free return policies strategically to one that is a shared cost model with the customer. Unlike traditional retailers, Amazon has a business model built around their annual prime offering to offset the “free returns” incremental costs.
With the right sizing AR technological capability advancements offered by the True Fits of the world, retailers could provide the tools customers need to make the right sizing choices. The liberal free return policies have led to bracketing becoming a significant and costly phenomenon for retailers to deal with. Additionally, customers’ overbuying has consequences from a carbon footprint and sustainability perspective. While it make take some adjustments, customers will eventually adjust to the new returns cost-driven model.
If retailers or brands want to lower the cost impact of returns, then it’s on them to invest in online tools and shopping experiences to reduce customer guesswork and uncertainty. Detailed photos, full descriptions, specifics about sizing/fit/use, expert advise and increased personalization help reduce the practice of buying multiples for returns.
Retailers who start charging return fees will risk pushing customers to places like Nordstrom and Amazon, with low barriers and a greater emphasis on customer experience.
Why are we acting that all customers are a parasite on your business? When did this happen? Successful retailers make adjustments to serve their customers. That’s good business. We need to reduce the return volume through better strategies and operations. Studies show that over 70% of returns can be controlled by the retailer, and that returns indicate upstream issues in the business that need to be addressed. It’s time for retailers to delve into their data and uncover the root cause instead of only thinking that adding fees and changing policies will solve the problem.
It will take a new commitment to education to remind consumers that returns were never free. We all pay for them, just not always explicitly! As many shoppers become more mindful of waste, and their environmental footprint, it’s a great time for retailers to encourage a new attitude towards returns, and the impact of the “three sizes, five colors” approach to online shopping.
Customers want to know how a product would fit, before actually committing to buying it. Therefore, customers need flexible return policies. If retailers do not offer free returns, it may lead to lost sales. Additionally, retailers solely relying on e-commerce sales cannot offer the personal touch as brick-and-mortar stores do. If there is a short return window or chargeable returns policy then customers would want to visit a brand’s store to actually check out the products. Therefore, in order to implement strict return criteria, it has become a prerequisite in retailing to leverage omnipresence.
Are returns too costly? Actually, what our ECR research found was that most retailers did not know the true cost of a return. One of the recommendations in the report was to appoint a tzar of returns, aka a Chief Returns Officer. In a recent update with the 40-50 retailers in our group, only a few had appointed such a leader. Perhaps your question can only be answered once the true cost of a return is fully understood, and a returns strategy declared, that would need to include consideration of the CLV and the appointment of a chief of returns.