E-commerce Returns: Should Shoppers Foot the Bill?
Last week, retail giant Zara announced that it will be charging UK shoppers to return online orders via third-party delivery points, kickstarting a debate about who should bear the burden of costly e-commerce returns.
However, this is not an unfamiliar debate amongst retailers: the conversation around returns has been a thorny issue since e-commerce boomed in 2020 and retailers have found themselves scratching their heads wondering whether or not they should charge customers for returns at the risk of customer dissatisfaction, or if they should instead address their bottom line and prioritise their struggling margins.
The answer is neither straightforward nor easy, and Zara has made a bold, experimental move in being the first retailer to charge their customers for returns.
Below are some considerations from the side of both the struggling retailer as well as the dissatisfied customer where we look at why retailers would be justified in charging for returns as well as reflections from e-commerce shoppers who maintain that returns should be provided as part of the e-commerce package.
The struggling retailer
The impact from returns is largely twofold. Firstly, returns are not sustainable for retailers financially and some brick and mortar stores are struggling to make money on e-commerce channels with the cost of returns a major contributing factor.
Pitney Bowes, an American technology company, published research in April 2022 showing that returns are a greater challenge for sellers than ever before. It surveyed medium- and large-brands in the US and found online returns cost retailers an average 21% of order value – with several brands reporting considerably higher ratios.
Pitney Bowes also noted that the financial burden is compounded by the fact that e-commerce return rates are at historic highs. Citing the National Retail Federation, it said returns jumped from 18.1% in 2020 to an average of 20.8% in 2021.
Bharat Parmar, Tambo’s Technical Sales Director, says that, “Consumers expect to not have to pay for returns and sellers (are forced to) use free returns to compete, especially in highly competitive market categories.
“There seems to be an expectation that for high value items (above £50) most people expect that returns should be free, and companies will have built this into their pricing. In the clothing and accessories category, it's common practice for people to order multiple items knowing that most will be returned after they've tried them on. Not only is this wasteful but it also adds high a cost to clothing retailers' business model".
Secondly, e-commerce returns have a significant environmental impact. Each returned package leaves a trail of emissions from the various trains, planes, and trucks that carry it back to the seller or retailer. In short, that pollution contributes to climate change and worsens air quality. Even worse, many of the discarded items head straight to landfill. So, as e-commerce grows, the environmental problem only gets worse as free returns become the expected norm for shopping online.
In the US, around half of returned clothing items go back on sale according to research by Optoro, a company that helps retailers like Ikea streamline their returns processes. Retailers may also return items to the manufacturer, or they may try to unload it to other companies who sell it at discount prices (like TK Maxx). Either way, returned inventory in the US creates over 15 million metric tons of carbon dioxide emissions annually, the company found. That’s more than what 3 million cars might put out in one year.
The stock that isn’t lucky enough to be resold ends up in landfill. Five billion pounds of returned goods end up in US landfills each year as items often become damaged in transit. On the other hand, retailers sometimes realise that throwing out a returned item is the most cost-effective way to manage the process as the alternative would be paying for the items to be cleaned, repaired, and returned to the shelves.
Regarding returns and the best trajectory for retailers, our Head of Marketplaces, Jennifer Hodgkinson, notes that, “I've come across quite a few retailers recently who don't offer free returns, even on expensive websites. As a consumer, it really puts me off - however, I wonder if this is just because we've become accustomed to it?
“In reality there's really no reason that a retailer should foot the bill. But the flip side is that if they don't, we would be significantly less willing to order, specifically clothes, online. The fact that Zara still offers free returns in store may be the saving grace for them. However, a lot of websites don't have that brick and mortar option”.
Adding to Jennifer's comments, Bharat says that, “If a brand is strong enough where their items are highly desired, or if they have a bricks and mortar network where items can be returned for free, then online returns should be charged to stop wasteful practice. It does compel online-only clothing retailers to invest in their brand so that their products are highly desired and people are not put off by being charged for returns”.
The dissatisfied customer
On the flip side, e-commerce now makes up over one third of all retail sales in the UK, according to SmartInsights. Similarly, Statista notes that Worldwide, e-commerce accounts for 19.6% of all retail sales. With such high volumes of online transactions, e-commerce retailers will find it difficult to start charging for returns as it will render them less competitive and open up the opportunity for customers to turn to other retailers who are willing to foot the bill.
What’s more, most shoppers are uncomfortable with the idea of paying for a return after having become accustomed to free returns. Although there are some very strong arguments in favour of charging for returns, an internal survey conducted by Tambo found that an overwhelming 83% of respondents would avoid shopping with a company that charged for e-commerce returns. One anonymous respondent commented that, "I think there are other ways retailers can offset their carbon emission without passing the cost onto the consumer".
To reiterate this, Beth Fisher, a 26-year-old e-commerce shopper, tells us that, “I probably won't purchase from Zara from now on. I know that ASOS will deliver next day and allow free returns; I have to try before I buy so I don’t think it’s worth it”
On the other side of the argument, Abby Salmon, also a fashion-focussed 26-year-old, says that, “I think it’s a good idea and will help people make more considered purchases which is what we need to do to become more sustainable. People have fallen into a habit of buying and returning which is detrimental to the environment and we need policies like this to incentivise behaviour changes”.
When asked how shoppers will be able to try before they buy, Abby tells us that, “I think that companies need to invest in tech to help people try things on virtually. Additionally, brands need to do more to educate the customer on the clothing regarding things like materials used and be clearer with sizing”.
A difficult decision
All-in-all, retailers will have much to weigh up before reaching a decision on whether or not to start charging for returns. The arguments in favour of the environment are compelling, particularly in an era where most businesses are scrambling to capture and display their green credentials and governments globally are introducing macro-level policies to curb climate change. By the same token, as e-commerce becomes more competitive, brands will want to do as much as they can to maintain their positioning within the market and retain returning customers. Either way, retailers will be watching closely and taking note to see if Zara sales take a dip in the coming months and years. We will be watching with them.