Source: Inditex promotional video
Should Zara (and other retailers) be charging for online returns?
Zara in the UK has started charging a fee of £1.95 ($2.39) to return merchandise bought online. The fast-fashion retailer reportedly instituted the charge for environmental reasons.
Zara deducts the refund charge from the refund. Customers buying items online can still return them for free in stores. Mailed returns in the U.S. are still free for 30-days post purchase.
A Zara spokesperson told the BBC, “Customers can return online purchases at any Zara store in the UK free of charge, which is what most customers do.”
A survey of U.S. online buyers from eMarketer taken last November found only nine percent returning merchandise in store when asked about their most recent return. The most popular return route was mail, cited by 37 percent; followed by alternative drop-off location (e.g., pharmacy, locker), 20 percent; and returned to a different retailer (e.g., Amazon/Kohl’s), 15 percent.
Online returns are rising and are seen as a margin killer for online selling. A recent Pitney Bowes survey of U.S. online retailers found returns cost retailers an average of 21 percent of their order value. The National Retail Federation (NRF) found that 20.8 percent of goods bought online were returned in 2021, up from 18.1 percent in 2020.
Zara risks disappointing customers who gain confidence in making an online purchase when they see free shipping and returns. Power Reviews’ 2021 returns study found consumers indicating free shipping (96 percent) and free returns (76 percent) as important considerations when shopping online.
An analysis by parcelLab in early 2021 of the NRF’s top 100 U.S. e-commerce sites found slightly more than a majority of retailers offered returns for free or with a “no need to return” policy. Of the 43 percent of retailers charging for returns, 59 percent charged more than $10.
Among those charging for mailed returns in the U.S., Uniqlo charges $7, Urban Outfitters, $5; J. Crew, $7.50; Lands’ End, $6.95; and L.L. Bean, $6.50. Belk and Wayfair customers are responsible for return shipping costs.
Growing environmental concerns may lower consumers’ expectations around free returns. A recent study from Cycleon found almost two-thirds (64 percent) of U.S. consumers willing to pay extra when returning a parcel to subsidize greener carrier options.
- Zara starts charging shoppers for online returns – BBC
- Why Zara charging for online returns may backfire – eMarketer
- Shoppers divided over Zara’s new returns policy that charges – Independent
- Pitney Bowes Survey: Returns Cost US Online Retailers 21 percent of Order Value – Pitney Bowes/Business Wire
- Retail Returns Increased to $761 Billion in 2021 as a Result of Overall Sales Growth – National Retail Federation
- Goods returned by US consumers surged 78 percent in 2021 – Financial Times
- Consumer Survey: Returns in Retail in 2021 – Power Reviews
- Five Differences Between U.S. and European Online Returns Habits – Supply Chain Brain
- Do retailers need to further commit to free delivery? – RetailWire
- Comparing Operations Experience in US Retail – parcelLab
- Consumer Preferences For Sustainable Returns – Cycleon
Discussion Questions
DISCUSSION QUESTIONS: How likely is it that large numbers of retailers will start to charge for the shipment of returns? Will U.S. consumers become more accepting of being charged for online returns based on environmental concerns or some other factor?
Poll
Loading …BrainTrust
Dave Bruno
Director, Retail Market Insights, Aptos
Kai Clarke
CEO, President- American Retail Consultants
When it comes to online returns something has got to give — even if consumers don’t like it. The fact is, returns are killing retailer margins and they need to take steps to try to preserve their profitability. There’s a long list of retailers charging for returns, and I suspect that more retailers will add return fees to help offset costs. Reducing the environmental impact is also an important consideration, but I suspect that the biggest driver is profitability (or lack thereof), and consumers will need to get used to seeing return fees.
The logistics associated with online orders, including managing returns, is way more expensive than the logistics for store purchasing. For most categories, including apparel, the price the consumer pays for the convenience of delivery and returns is often zero, which crimps online margins. With both return rates and the costs fulfillment rising, retailers need to review these cost structures. I doubt that everyone will follow Zara’s path – but more retailers will. Positioning the decision as an environmental one is smart, but in reality it is primarily a commercial decision wrapped in greenwash.
Great points Neil. I agree that it is a margin decision wrapped in greenwash. Consumers have been spoiled with free online returns, which is not economically realistic for retailers. I think it is reasonable for retailers to charge for shipped returns and offer free returns in the store.
Whether or not this panel encourages retailers to charge for the shipment of returns, it is a financial fact that this is costing somebody something and, therefore, someone is going to have to pay. It is not sustainable for retailers to continue to bear this cost (and other, similar costs). This bubble will burst. The event will manifest itself by either a rise in retail prices (not fair to all) or by charging the culprits (fair to everyone).
Well, it’s certainly one way to get people back into stores. This is not a new problem. It existed in the catalog industry long before it moved online. This is what happens when you don’t have a fitting room.
Personally, I think charging for returns will depress sales, but I guess we’ll find out.
Agreed – I think there’s more opportunity for retailers to consider what they could control to reduce returns. Whether it’s relationship with the stores, most consistent quality and sizing that eliminates a consumers’ need to order multiple, or engaging with consumers through virtual fitting rooms.
Zara’s return fees are modest and shouldn’t be a deal-breaker for most shoppers. Even so, Zara will need to tread carefully as uber-fast-fashion rivals such as Shein, and circular economy specialists like ThredUP, nip at Zara’s heels.
The Zara return fee will be a very interesting bellwether. On one hand, the fee is nominal, and I am guessing not entirely prohibitive to most consumers. On the other hand, if people do find the fee to be prohibitive, they are not charging for online returns made in the store (for now, anyway). With 2,200 stores, there are plenty of options for most people to avoid the fee and — wait for it — go to a store, which is the best possible outcome for Zara. I suspect many chains with a large store estate will be watching closely to gauge consumer reactions.
This was an inevitable outcome for online retailers, just like free shipping was not sustainable for most. The cost of returns are staggering, just like shipping. The outcome of now having to realize the need to charge for returns/shipping is that stores are now more competitive than ever. Consumers may not like the return charge, but somehow I can hear brick-and-mortar stores cheering in the background.
Absolutely charge for returns. Free returns sounded great when the mission was to get customers comfortable shopping online. OK, they’re comfortable — really, really comfortable shopping online. Now the focus needs to go back to profitability and sustainability. Yes, a couple of customers may leave. But a couple of other customers may visit the stores more frequently, which would be a very positive outcome.
Online returns present the biggest challenge to retailers today. Given that universal sizing doesn’t exist, soft goods shoppers are forced to buy more than one size and return the one (or more) that doesn’t fit. Zara’s approach is right: encourage in-store returns and discourage shipping. If you get them in the store you have a great chance of converting them to a sale. Also, Zara tends to have exceptionally long customer lines outside its stores. People don’t want to wait in that long line just to return something. Once inside the store, they are likely to buy more items so they feel it was worth the wait.
Many hard goods retailers already charge a restocking fee. People don’t like it, but they’ve come to grudgingly accept it. Maybe all types of retailers need to get creative with giving shoppers more options to deal with items they don’t plan on keeping.
In the rush to capture market share, e-commerce retailers have created an unsustainable return system and set customer expectations at an unrealistic level. Changing will take time and disappoint shoppers, but it’s a problem that can no longer be ignored.
Any online retailer that charges for returns, regardless of the reason, is pursuing a demand destruction strategy in the guise of cost containment. A better approach is to invest in better product descriptions, higher quality images and color fidelity, customer reviews, and accurate sizing charts. There will always be returns, and some customers will abuse that policy; that’s the nature of the old catalog sales model and its online successor.
A RetailWire post last week about Starbucks charging more for non-dairy milk quickly escalated into a discussion on the ridiculous service fees charged by hotels, airlines, car rental, and restaurants. I understand that online returns are excessive and expensive but charging for returns is just another way to ding customers.
Consumers are on to all these extra fees and they aren’t happy. It’s perfectly fine to charge for shipping, but an additional service fee, no matter how nominal, is a sticking point. If you have to charge an additional fee roll it into the cost of whatever I am buying and be done with it.
Charging for online returns now is more about reducing last-mile costs as gas prices soar (vs. “environmental reasons”). And more retailers will follow.
Last month I started to notice other major retailers deducting a return fee from the refund. Losing free returns is disappointing, yet most shoppers understand that companies need to contain rising costs.
According to a report by Incisiv and Newmine, retail returns hit $761 billion in lost revenue last year, up 78 percent YoY. That’s before inflation really took off. It’s unsustainable. Retailers are trying to protect profitability in a volatile market that could be heading toward a recession.
Don’t forget Amazon — they also charge for return by mail and require UPS drop off unless you drop off at Kohl’s or a Whole Foods. What was once the most customer-centric retailer has now set a standard that others should follow. Walmart now seems to be the most customer-centric as they will even schedule carrier pickup for your returns. Those costs have to come from somewhere, and although it may be counted as a CAC for now, long term it is likely unsustainable.
No, no, no — free returns have been a key part of U.S. retailing since Sam Walton started his first Ben Franklin store. Comparing what other retailers in the UK and Europe are doing is a poor contrast of retailing models with the American consumer and retailing here in the U.S. Online membership models like Amazon, Walmart and even the club stores all manage their model to better handle both free returns and free shipping. Plus, this is what the American consumer has grown up expecting over the last 60 years. All mass retailers have a no questions asked, free return policy, and most have extended it to their online model as well. With the dramatic online growth of retail over the last five years, don’t expect this to change any time soon.
If the retailer has an alternative option for accepting returns like BORIS (buy online, return in-store) which is free, I can see the charge for shipping returns back to the retailer becoming more commonplace. It would deter shoppers from over-buying (knowing they will return anyway) and reduce margin erosion by making the returners foot part of the bill. It also makes good use of the store network.
Retailers will have no choice but to start charging for returns until they can solve the sizing challenge. Zara is also a culprit for unrealistic styling and should be called out as not being able to visualize what a product looks like on a body will increase the rate of returns.
Unpredictable sizing is a major margin killer and is the real culprit here. I’d like to see an apparel industry consortium address it.
It is great to see a big player like Zara taking a stand because the cost or processing returns is a major problem. Without some form of cost to the consumer — and it seems that worries about product being thrown away is not sufficient — behaviour is unlikely to change.
In clothing, one of the big reasons for returns is buying multiple sizes — which begs the question if sizes were consistent between retailers could this help reduce returns?
The reality is that sizes are not even consistent within the same retailer — so perhaps an initiative to address this could be the single biggest thing a retailer, or indeed the entire industry, could do to reduce return rates.
Free returns were introduced to accelerate customers’ adoption of online shopping. Now that everyone is comfortable with and has a habit of online shopping, retailers will have to start charging for e-commerce returns because accepting them for free is not a sustainable practice for long-term growth. Zara has implemented this very smartly as 1.95 pounds is not too much money to pay but is sufficient to motivate consumers to either reduce returns or return online products in the store. Environmental concerns, on the other hand, are a good topic for a bar chat but not enough to convince buyers to minimize their returns on e-commerce purchases. A better strategy would be to encourage BORIS adoptions and communicate the benefits of this strategy. BORIS helps retailers in reducing shipping expenses and upselling when customers come to return products in-store. Customers, on the other hand, receive their e-commerce refunds or exchanges instantly. Everyone wins.