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E-commerce: will the crisis mark the end of free returns?

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Free returns have been a driving force in the development of e-commerce and customer loyaltyIt is estimated that the average return rate (1 product out of 4) in e-commerce is 25% compared to 8% in physical commerce. Yet returns have a cost: financial and environmental. As we showed in 2011 in European-wide research, the final customer does not perceive the value of the delivery. The price of products has therefore evolved to include this. Today, the crisis is reshuffling the deck. The existence of free returns is questioned by inflation and the logistical challenges that come with it. If your company is in this situation, the article will provide you with solutions, including technological ones. For example, one of our customers has developed an augmented reality app (see below) that helps reduce the risk of making a mistake when choosing eyewear. Do not hesitate to contact us to learn more about the existing solutions.


Summary


7 statistics on returns in e-commerce

  • 25%: average return rate in e-commerce
  • 30%: average return rate in the online fashion
  • 8%: return rate in physical stores
  • 10€: the minimum cost of a return for an e-retailer, including the price of transport (5€ minimum) and the costs of inspection and repackaging
  • £1.99 is the cost charged for the return of goods by Boohoo since July 2022
  • 2.6 million tons: the amount of merchandise returned to the U.S. that is destroyed instead of being repackaged
  • 1,360 km: the distance Amazon products travel from France to be inspected and repackaged in the Sered factory (Slovakia)

Free returns: how did this happen?

In pan-European research in 2011, we showed that 44% (Belgium) and 76% (Germany) of customers had already had to return a product purchased online. At that time, the main dissatisfaction factor was returns. The Belgians and the French particularly complained about paying to return purchased products. In addition to this, there is a finding that we already made in 2011 in this research on 6 countries and 2100 consumers: 54% did not perceive the added value of transport.

E-retailers had the idea of lowering delivery fees to remove the barriers to purchase. It was Amazon that launched the movement. Its Prime service (200 million subscribers) was an excellent way to “hide” these delivery costs behind a monthly subscription. The latter has just increased by nearly 50% because of fuel and logistics costs. The French passed legislation in 2014 to prohibit books’ free delivery and not disadvantage small booksellers. Amazon charges €0.01 for delivery there. This law did not change anything, and the e-commerce market share continued to grow.

In short, as long as delivery and return are free (or at a symbolic price), consumer behavior will not change.

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Free returns are a drain on e-retailers’ accounts

However, returns have a cost for e-retailers. And it is not negligible; in an interview granted to LSA, the manager of the online fashion website BonneGueule estimated in May 2022, the cost of return per product at 13,20€. Transportation costs represented 5,50€. The rest was due to repackaging costs (quality control, dry cleaning, …).

Considering the return rate (30% in the online fashion industry), it is not surprising that these costs burden the profitability of e-commerce websites. The champion in this matter is Zalando, whose accounts are known to remain in the red because of the cost of returns. By proposing free returns, deviant buying behaviors have been encouraged:

  • buying the same item in several sizes
  • ordering an item without the intention of keeping it (to wear it at a party, for example)

Zalando is said to have been unprofitable because of its high return rate.


The environmental cost of returns

In addition to an undoubted financial cost, returns also have an environmental cost.

The characteristics of logistics flows are what they are, and returned products sometimes travel thousands of kilometers. Amazon’s returns management center for France is located in Sered (Slovakia), 1360 km from Paris. The situation is no different in the United States, where the logistics of returns generate 15 million tons of CO2 every year. Faced with the ecological emergency and the explosion of logistics costs (salaries, fuel, etc.), it is urgent to reform the system. Solutions exist that take advantage of nudge marketing, among other things.


Should deviant behavior regarding free returns be sanctioned?

Some companies have decided to punish customers who abuse free returns. Amazon and Asos are closing customers’ accounts who return too many products.
Rather than going to such extremes, it is better to introduce safeguards. An increasing price according to the number of returns can be a good solution. Zalando proposes another approach to avoid ordered clothes being worn for a specific occasion and then returned. A large, highly visible label is placed on the garment, making it impossible to wear without making a fool of yourself.


Solutions exist to limit returns

Solutions exist to limit the rate of returns in e-commerce. However, each solution must be carefully considered and not negatively impact customer satisfaction. Next, Uniqlo, Zara, and Boohoo have chosen the healthy way by charging for returns. At £1.99 in the UK, they remain symbolic. From now on, the cost of returns will be deducted from the refund.

However, there are more virtuous ways to improve customer satisfaction. This means investing in product description and personalization of choice to reduce the likelihood of making a mistake when buying online. Here are 3 options to improve the situation.

Step 1 (the easiest): a better product description

Leaving aside the deviant behaviors we mentioned above, returns are caused by a mismatch between the customer’s expectations and the actual characteristics of the product. Describing the product better, taking multiple photos, and proposing videos to put it in context are easy ways to help the consumer make a choice.

So don’t hesitate to put many photos and videos in addition to your descriptions. Be sure that the customer will see them before reading the description.

Step 2: Better sizing advice for online fashion

The other source of returns results from an error in the garment size. Investing in the right sizing assistance is therefore crucial. Each brand of clothing sizes differently; sizes vary from continent to continent. These are all sources of error that the e-merchant can address. The online platform can thus ask the customer for his measurements to suggest the ideal garment or propose matches based on a garment that fits him well.
However, this process requires technical investments to implement a recommendation algorithm.

Step 3: The technology option (augmented reality)

The last option is the most technological but also the most effective. It uses augmented reality to eliminate doubt in the consumer’s mind and drastically reduce the return rate. Two of our customers have developed innovative technologies:

  • Treedy’s is developing an app that scans your body and suggests your ideal size. Beyond the technological aspects, significant work is also done to build a database of sizes and brands.
  • STSolution proposes an augmented reality application that scans your face and shows you in real-time how you look with your new glasses. It’s amazing.

 


Conclusion

Reducing the rate of returns is a priority for the financial balance of e-commerce. The current crisis and the galloping inflation will gradually lead to the end of the era of free returns. Some brands have started to charge for returns, and the movement is bound to grow. Solutions (especially technological ones) exist to improve decision-making and customer satisfaction. Nudge marketing mechanisms can be coupled to encourage the customer to think more carefully about his choices.

 

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Author: Pierre-Nicolas Schwab

Dr. Pierre-Nicolas Schwab is the founder of IntoTheMinds. He specializes in e-commerce, retail and logistics. He is also a research fellow in the marketing department of the Free University of Brussels and acts as a coach for several startups and public organizations. He holds a PhD in Marketing, a MBA in Finance, and a MSc in Chemistry. He can be contacted by email, Linkedin or by phone (+32 486 42 79 42)

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