How retailers are paying the price for free returns

Sam Sturgeon
How retailers are paying the price for free returns

While consumer goods brands may have been buoyed by their annual increase in sales during the holiday period, they will also be counting the cost of returned goods – gifts that weren’t right or liked, fashionistas who bought multiple sizes so that they could return what didn’t fit and sale shoppers who got a better deal elsewhere.  

The cost of returns is expected to be huge this year as inflation continues its upwards trajectory. America’s National Retail Federation suggests in its report that returns will exceed $816bn dollars this year. An average of 16.5% of all online sales are now returned in the US. 

As a result, retailers and brands alike are drowning in an operational tsunami as thousands of multiple, single inbound deliveries arrive for processing. Rising shipping costs and the labor involved in managing returns means that increasingly retailers are deciding that they can no longer cover the cost of this free service. Free returns could become a thing of the past this year. Stores from Abercrombie & Fitch and BooHoo to Zara are now charging shoppers to return goods. 

No such thing as a free return

It won’t be the first time that the bad behaviour of some has resulted in increased costs for everyone.  In the travel sector, for example, travellers had got into the habit of reserving multiple rooms for holidays until they made their final choice, cancelling the rest at the last minute and subsequently leaving some hotels with empty rooms. Now they are charged a premium for the convenience.

People don’t always evaluate all their actions as contributory factors to such sector ‘resets’. My Generation Z daughter, for example, is outwardly critical of the damaging impact that fast fashion has on the planet. When I pointed out that her ‘life hack’ for the formal high school dance – ordering a number of dresses and sending back the ones she liked the least - was just as bad for the environment as fast fashion, she was surprised and upset.

To charge or not to charge; that is the question

Retailers want to recoup costs wherever they can, but deciding how much to charge can be challenging when consumers still place a high value on convenience. 

Thankfully AI and research algorithms  can help us determine the price consumers put on having access to free returns as well as the price threshold where the cost means that they decide not to purchase the brand or switch to a competitor. Marketers don’t need to guess what the impact might be of charging restocking fees. 

Marketers who are feeling the pressure to raise prices will be conscious about the impact this has on their brand perception too. It will take a while for consumers to adapt to the fact there is no such thing as free returns and that someone must pay the costs somewhere in the value chain. 

Consumer research will help them to understand the trade-offs. Is convenience and cost more important than acting sustainability? The approach will be different across brands and categories and depending on how consumers value the brand. 

Communication will need to be carefully crafted to decrease the annoyance experienced by the consumer. Emphasizing that charging for returns is the responsible thing to do and that “we are in this together”, or that you hope that the price increases are only temporary, can go a long way to building a sense of empathy and trust.

Understanding the price elasticity of individual brands in a high inflation environment and how associated price messaging is executed will determine whether brands are able to increase perceived empathy or whether they will erode brand trust and loyalty, and ultimately whether they will maintain or lose market share.

Originally published in

About the author

Sam Sturgeon, PhD, is the Global Head of Marketing Sciences at Hall & Partners. He completed a dual-title PhD in Human Development and Demography and has over 15 years of experience as an applied statistician, demographic forecaster, and mixed-methods market researcher. He loves answering complex questions with innovative research methods and then bringing compelling stories to life through captivating data visualization. His work on marriage and dating has been featured in Politico, the Wall Street Journal, USA Today, the Washington Post, and other publications.