Fashion retailer H&M is the latest to announce that it is considering charging customers for online returns. The company is currently testing the change in return policy in Norway and the United Kingdom. H&M is not the first big fashion retailer to toy with the concept; Zara recently introduced paid returns in the UK, Ireland, Belgium, and the Netherlands, whilst Boohoo introduced a standard £1.99 charge in place of free returns. Next and Uniqlo also charge customers for online returns.
The move comes at a time when company costs have risen due to increasing prices for materials and cargo, whilst consumer spending has lowered amidst economic uncertainty. As return rates have risen in step with the shift online, so too have the costs of e-commerce logistics. Additionally, the apparel vertical has much higher return rates than other e-commerce verticals. In the US for example, around 21% of product returns were clothing items, whilst in the UK the return rate for clothing is around 32%. This is compared to a 7-8% return rate for consumer electronics in both major economies.
High return rates are largely down to the fact that apparel consumers will often take part in a practice called ‘bracketing’, in which consumers buy more than one size/colour of the same item and return those that were not according to their liking. Premiums placed on newness, low prices, free delivery, and free returns by some fashion brands encourage customers to take part in ‘bracketing’. Quality issues and size inconsistencies which often plague the fast-fashion industry are in turn synonymous with heightened return rates.
Although returns are also incredibly harmful to the environment, the move is predominantly financially motivated. Hargreaves Lansdown reported in mid-2022 that ASOS, a pure-play online fashion retailer, was feeling the sting of high customer returns and market volatility. Full-year revenue growth is expected to be around 4-7% and pre-tax profit between £20m and £60m, down from previous guidance.
The decisions have been met with backlash from customers. Rob Shaw, SVP global sales at Fluent Commerce, says: “With product return rates in e-commerce ranging between 20% to 30% and global e-commerce sales projected to hit £4.7tn by 2023, the volume of returns is only set to increase. As a result, the way retailers and brands manage returns is becoming a more important part of the customer journey. A study carried out in 2019 by UPS revealed that 54% of consumers look at the returns policy before making a purchase. This only serves to underline the importance of returns in the wider sales process, and its terms and levels of convenience will have an influence on the bottom line if customers don’t like what they see. The key point for retailers is the way they deal with a disappointing or unwanted purchase is just as important as how well they attract customers in the first place.”
Although it remains to be seen how the decisions regarding free returns will impact the bottom line of retailers, it is likely that other retailers may follow suit as returns continue to eat into profit margins. Free returns may therefore soon be a thing of the past.
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Source: Transport Intelligence, 13th October 2022
Author: Nia Hudson
