New research suggests that retailers should think twice before charging customers for returning online purchases.
Eighty-seven percent of shoppers in a survey of 9,286 adults in the U.S. by PowerReviews said they “would be at least a little likely to stop shopping” on a site that ended free returns. Thirty-nine percent said they would be very likely to cut off a brand or retailer that charged them for returns.
Consumers also don’t want to be rushed on returns. Eighty percent said they would be at least a little likely to shop elsewhere if return windows were shortened. Seventeen percent said they would be very likely to do the same.
JCPenney charges $8 for returns by mail and maintains that it is not suffering adverse consequences as a result of its policy.
“Customers say free returns is the most important thing, but if it’s not there they still shop,” Katie Mullen, chief customer officer at JCPenney, told The Wall Street Journal. “There is a big difference between what they say in surveys and what they do in practice.”
The same article cited research from Narvar that estimates that it costs retailers $26.50 to process every $100 in returns. Reducing returns has become a significant issue for retailers operating in an environment where consumers are cutting back on discretionary purchases due to inflation.
A positive for retailers is that return rates have decreased since reaching their highest levels during the pandemic.
“This is partly due to people returning to stores to shop,” said Wendy Louie-Lam, forecasting analyst at Insider Intelligence. “The other reason is retailers are implementing new policies or AI tech to minimize returns. Many online apparel retailers have implemented or are planning to implement new AI technology that should help with sizing to eliminate bracketing (people buying more than one size).”
Insider Intelligence expects online return rates to fall to 18.2 percent this year from 21.7 percent in 2021. It forecasts that online returns will fall to 14.7 percent by 2026.
DISCUSSION QUESTIONS: Will significant percentages of customers stop shopping at a site if it begins adding return fees? What are the most effective ways to reduce returns?
Bob Amster, Principal, Retail Technology Group
some customer will shop elsewhere if charged for returns. However that will only last until most retailers start charging for returns, and most retailers will.
Mark Ryski, Founder, CEO & Author, HeadCount Corporation
If returns fees are reasonable and the returns process experience is a good one, consumers will accept it. It widely understood that expenses related to returns are killing retailers’ profitability and it has become utterly unsustainable for many of them. Of course consumers say that they’ll stop buying if a retailer charges for returns, but the truth is, if the retailer is only going to loose money, what’s the point of having the customer? As noted in the article, the application of technology to better manage returns and more accurate sizing will go a good long way to reducing returns.
DeAnn Campbell, Chief Strategy Officer, Hoobil8
Retailers need to approach this as a training process. Once something is given for free it’s very hard to walk it back without meaningful incentives to change. It will be essential to establish transparency in communication to help shoppers understand the why behind new return policies, go gradually in ramping up by keeping returns free at higher price points, and–at least initially–offset charges with in-store coupons. Additionally, expanding on front end tools like fitting rooms, better product info, easy access to expert advice will help shoppers understand how the product will work for them can help reduce the need for returns in the first place.
Gene Detroyer, Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
My wife only deals with retailers who have not only free returns but easy returns. Her first step with a new retailer is to check the return policy.
That being said, there is no such thing as free returns. Any company with reasonably sophisticated finance includes the cost of returns in its overall pricing. Just because the shopper doesn’t see it doesn’t mean it isn’t there.
Bob Amster, Principal, Retail Technology Group
As true as your last statement may be, regrettably, retailers building the cost of returns n to the product price are punishing ‘returners’ and ‘keepers’ equally and that, is why charging separately for returns makes sense.
Gene Detroyer, Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
“Punishing?” That is a strange choice of words. While Zappos is an extreme example of encouraging returns, they would have no business if they uniquely charged for returns. The ease and ability of returns encourage customers to buy more. And, if they buy more, they are likely to keep more.
Melissa Minkow, Director, Retail Strategy, CI&T
Bracketing is such a core habit of online shopping, and consumers just don’t trust items to work when bought online. I do absolutely think that charging for returns will impact sales.
Gene Detroyer, Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
…and the retailer should encourage bracket purchases with free returns. “Do I want the red, blue, or white one? I will order all three and keep one.”
Then when the customer sees all three, the customer decides to keep at least two or maybe even all. A sophisticated retailer knows exactly the online buying behavior.
Katie Thomas, Lead, Kearney Consumer Institute
Agreed, Melissa. I think charging for returns will go the way of free shipping – retailers can try to charge for it, but not enough retailers will do it, leading all to go back to free returns. If they want consumers to return less, perhaps they should look inward about why they are (such as inconsistent sizing, poor item photos, lack of customer reviews, etc).
Peter Charness, Retail Strategy – UST Global
The “free commerce” party is ending and reality is setting in. Returns (and delivery in the first place) were never free, the costs were just not visible and were buried in product margin. I expect that “free ship and return” will reduce everywhere until it is not a differentiator between retailers, and “free delivery or return” will become another type of promotion, or reward for loyalty or large basket purchase values.
David Naumann, Marketing Strategy Lead – Retail, Travel & Distribution, Verizon
You are spot on Peter! It was a slippery slope when retailers started offering free shipping and then free return shipping. While shoppers may be a little bitter at first when retailers start passing on real costs to customers, but if retailers band together, it will reshape shoppers’ perceptions. In the meantime, retailers should continue to encourage customers that are sensitive to paying for shipping costs to pick-up and return their online orders in stores.
Neil Saunders, Managing Director, GlobalData
Few customers want to pay for returns. However, whether they take action and defect to another retailer depends on a lot of factors including whether the items can be obtained elsewhere (own-brand apparel usually can’t), whether they get other perks from the retailer such as free delivery, how confident they are in making a satisfactory purchase that’s the right size etc, and so forth. What’s certain, however, is that more and more retailers are now starting to charge for returns so the options for free returns are diminishing.
Ken Morris, Managing Partner Cambridge Retail Advisors
What is more important, customer service or profit? Isn’t the lifetime value (LTV) worth the investment? It’s best to look at the long-term relationship over the short-term profit. Treat them with respect and your trust will be rewarded.
Retailers can protect their bottom lines somewhat by deploying tech like RFID and serialized inventory. RFID on products will speed up the processing and reduce the cost of a return. RFID coupled with UGC to reduce bracketing will cut the cost of the return process. Also, get creative with returns pricing and options, but make sure to gather customer feedback along the way.
Rich Kizer, Principal, KIZER & BENDER Speaking
Retailers are working hard to maintain sales and garner new customers. Why in the world, in this economy would a retailer put up more roadblocks in front 0f a very attentive customer base. If return complaints and problems continue. establish a limit of returns in a period of time. Don’t make enemies and send the competition more business.
Lisa Goller, B2B Content Strategist
It’s not always apparent at the time of purchase that the retailer will charge a return fee. If retailers state a return fee policy up-front, more shoppers will scatter to rivals without fees.
Physical stores and fitting rooms increase certainty of what you’re getting. Virtual try-on tools like AR show how a product looks on your body (makeup, glasses, hair color) before you buy online.
Bob Phibbs, President/CEO, The Retail Doctor
This is one of the most important sustainability initiatives retailers are using. Bring it to the store, and the costs are much lower. Outside of climate change, when you return a pair of $50 jeans, Manhattan Associates estimates it costs $33. Charging for customers returning online is like charging for bags – it makes people pause and think – and change their behavior. Now add the carbon cost difference between returning online and in a store, and a smart retailer will be able to not only save $ but change the world for the positive.
Lucille DeHart, Principal, MKT Marketing Services/Columbus Consulting
This could be a marketing gift in disguise as more efficient retailers can use the free returns offer as an incentive. I would suspect that we will see more innovative ways to deal with restocking/return fees like “just keep it” or “free returns for high value customers” or “free instore returns only.”
Liza Amlani, Principal and Founder, Retail Strategy Group
There will always be a chance that the customer will shop elsewhere but I give shoppers a lot more credit.
They are more intentional in anything they purchase. They also know what they want and how a brand fits because of how they bought during the pandemic – multiple sizes and multiple styles until something works. They have already done the research. Outside of ultra fast fashion, customers are buying products that they intend to keep.
Retailers should also take some responsibility. They need to be consistently capturing customer feedback and returns data.
These insights should drive better product and design decisions. If retailers haven’t leveraged these tools to improve their assortments, then they have a bigger problem on their hands.
Ryan Grogman, Managing Partner, Retail Consulting Partners (RCP)
Yes, it will impact sales for the high-volume return customers, especially in the short-term. However, I see this is a potential loyalty program play. This is a great opportunity for retailers to provide their best customers with the benefit of free returns, while establishing a return fee for base customers. For those that already offer loyalty programs, this could very easily be added to the top tier, and for those who are looking to implement loyalty, this would be a great entry point to provide immediate benefits in exchange for signing up, or even paying for a tier.
Cathy Hotka, Principal, Cathy Hotka & Associates
Mystery sizes are a core problem for retailers and for consumers. Punishing customers for returning items that don’t fit isn’t the answer. Instead, retailers and manufacturers have to create a consortium to agree on more predictable sizing.
Jeff Sward, Founding Partner, Merchandising Metrics
Reasonable customers will understand and accept reasonable fees. And they will understand that they aren’t so much paying for the return per se, as they are paying for the convenience, for the time and gas saved. That’s a fair exchange of value and money between a retailer and a customer. And of course serial returners will seek out new retailers. Good riddance.
Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph’s University
Like the cat who tasted fresh tuna, canned tuna was no longer preferred. The same is true of customers who have enjoyed the taste of ‘no charge for returns’. You will see a change in some consumer behaviors depending on the item, return cost, and competitive options. The key is to minimize the need for customers to compromise. A small fee at the outset may give retailers permission to still give the impression that fresh tuna is reasonably available.
Mel Kleiman, President, Humetrics
The simple answer is some percentage will stop shopping online. For some sites, it will be significant, but for others, the convenience and product mix will still be where buyers are willing to absorb the cost.
The number one thing sites can do is have better descriptions a specifications of the products.
Rameet Kohli, Co-Founder/President & COO, Metrical, Inc.
This is largely a problem where size, color and style are the primary buying criteria. Nobody buys 3 refrigerators and returns 2. We all know that shopping online is not WYSIWYG (What You See Is What You Get). And the loaded cost of an item sold online should be less that that comparable item sold in stores – leaving sufficient margin to accommodate returns. So why is this the customer’s problem? Why are they paying a return tax when they’ve done nothing except shop for convenience?
Gene Detroyer, Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Great comment: Why are they paying a return tax when they’ve done nothing except shop for convenience?
Brandon Rael, Strategy & Operations Transformation Leader
Free returns are a misconception, as retailers and brands have found ways to recover these costs. However, we should expect product returns to increase proportionally as the rate of digital commerce increases. Bracketing is an emerging phenomenon, as consumers may need more confidence in a brand’s sizing and buy several sizes of a product to ensure it fits properly. However, retailers should provide full and clear transparency on their returns policy so consumers can make an informed shopping decision.
There are capabilities and innovations, including True Fit, which leverages ML and AR to help consumers make an informed online shopping decisions. This will help mitigate the bracketing level, reduce the returns rates, and reduce the overall costs to serve, which ultimately eats into the profit margins.
Product returns remain one of the most friction-filled customer experiences and require the tools, capabilities, infrastructure, technology, training, and associate enablement to ensure it goes relatively seamlessly.
Gene Detroyer, Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
…and more friction means fewer sales.
Brandon Rael, Strategy & Operations Transformation Leader
Exactly! Its the wrong kind of friction
Shep Hyken, Chief Amazement Officer, Shepard Presentations, LLC
In our research (www.Hyken.com/research), we found 32% of the consumers we surveyed (in the US) said easy returns were a reason they would likely come back. Free returns used to be a competitive differentiator. Today, it’s an expectation. Retailers did this to themselves by offering free returns. Now, some are going to retreat on that offering. Short-term, this could hurt retailers. If the industry moves away from free returns, there could be a tipping point where it no longer becomes an expectation. If that happens, then free returns once again become a differentiator..
Mark Price, Chief Data Officer, CaringBridge
Customer behavior regarding additional costs for returns involves both the product category and the competitive environment. From a product category standpoint, customers are more likely to object to return charges in categories where it is difficult to estimate the appropriate size or fit beforehand, such as clothing or shoes, rather than in categories such as electronics, where information provided on-site can preempt returns. From a competitive standpoint, the decision to switch retailers involves issues of switching costs. There is no brand switch without switching costs. The question is whether the cost in terms of time or actual expense exceeds the benefit of not being charged for those returns.
Net of everything, price parity, convenience, and perceived switching costs will generally triumph over returns in retailer brand preference.
Mohammad Ahsen, Co-Founder, Customer Maps
Consumers push back on retailer’ online return fees are imperative. 87% of shoppers would at least a little likely to stop shopping, on a site that ended free returns, as per the PowerReview Survey.
Some effective ways to minimize return from online customers.
1)Provide in-depth and accurate product descriptions.
2)Display multiple high-quality product photos that offer context.
3)Leverage product reviews that assist other customers
4)Optimize the accuracy and speed of fulfillment.
5)Application of technology to better manage returns.
6)Don’t skimp on packaging that protects your customer’s product.
7)Develop a clear, proactive post-purchase experience,
8)Identify customers who abuse your return policy.
9)Use gift cards and loyalty points.
10)Setting up drop points where consumers can leave items with or without packaging.
Gene Detroyer, Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Mohammad, a real retailer’s customer-centric solution to returns.
Zach Zalowitz, Founder, Salient Commerce Consulting
It depends on industry, but I’d tell you that younger shoppers expect it now free of charge and companies that do not have free or cheap returns won’t have higher share of wallet vs ones that do.
Michael Zakkour, Founder – 5 New Digital &International Marketing Lead at UNILEVER
We are going to go by what JCPenney, that paragon of success and innovation is saying? Oy vey. Yes, returns are a drag on profit, but the answer is not in charging for returns. The answer is using consumer centricity, immersive commerce, data and experience to lower the rate of returns.
Consumers have one overriding demand today: “Spoil Me or Else” – Or else I will find the brand, the retailer, the marketplace that will. Sure, if everyone adopts charging for returns you could argue a new, new normal is set. But then there will be the companies that figure out how to minimize returns and not charge for it that will have a competitive advantage.
Verlin Youd, SVP Americas, Ariadne
Short answer – yes. More nuanced answer – although likely to create a short-term reduction in sales, or at least those shopping at a site or location, the long-term impact will be a factor of total value. That total value will be the classic components of convenience, selection, price, and service, as well as feeling valued and appreciated as a customer including rewards for loyalty. Get the value right, and charging for returns is likely to be accepted by the shopper that the retailer really desires.
Doug Garnett, President, Protonik
Ask consumers whether they would prefer it to be free and they’ll always say yes — and even threaten consequences. But what happens in reality is far more subtle. The benefit of charging for returns of online merchandise involve far more than customer purchases. Companies must look at the whole result of a policy like this.
After all, most retailers aren’t making great profits with online sales to begin with. There must be a valid way to make money for retailers to keep given premium services for free. It’s rare that that happens.
Alex.Siskos, SVP Strategy, Everseen
In the ever-changing landscape of retail, our focus has shifted from “location, location, location” to “value” then “convenience.” Understanding a brand’s promise to customers is key, offering easy shopping, seamless transactions, and personalized experiences. Customer loyalty and lifetime value metrics and analytics are crucial, and while some shopper will switch retailers, it’s important to respect their desire for value. We are in an era of tech advancements allowing us to learn more, faster, and even better, apply more, quicker, and adapt to the changing needs of our customers. Dare I say, retailers can recreate the intimate, customized feeling of the local shopkeeper down the street, that truly knows my name.
Rachelle King, Retail Industry Thought Leader
Customers look for a good end-to-end purchase experience. The post-purchase experience is just as important as any other stage along the journey. Some customers can feel penalized if a purchase didn’t work out and they are charged for the return. This kind of post-purchase experience is how retailers lose customers.
Of course retailers should crack down on rampant return abusers but returns are a product of the sales process, they are inevitable. The best approach for online is a returns policy that’s made clear before purchase, more accurate sizing charts with supporting customer reviews, and exploring emerging trends and technology like Try Before you Buy, 3D Images or even AR/VR Try On.
Farah Paraiso, Marketing and Digital Associate
Personally, I will stop shopping at a site if it begins adding return fees. Customers buy online for convenience. If they will be made to pay for a return / repackaging fee, it will defeat their purpose. The most effective ways to reduce returns are product quality inspection, and comprehensive, informative product presentation.
Scott Jennings, Chief Strategist – Retail & CPG, Informatica
Customers expect free returns. If your internal data shows customers will continue to shop with your brand, similar to JCPenney, then it makes financial sense. I doubt that is the case for every brand. Investments in tech & process focused on deflecting returns in the first place through better more relevant product data & CX seems like the best place to invest to bring down the cost of returns.
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