3 November 2023 984 words, 4 min. read

Free returns on the way out, despite their benefits

By Pierre-Nicolas Schwab PhD in marketing, director of IntoTheMinds
Free returns are becoming the exception rather than the rule in e-commerce. Yet scientific research reveals that their impact on sales and customer loyalty is enormous.

Free returns have become a standard feature of e-commerce. But the crisis in the sector, coupled with inflation starting in 2021, has led to the gradual disappearance of free returns. We predicted this as early as 2022 in an article in which we also explained the solutions to limit the rate of returns.

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12 statistics on returns in e-commerce

  • 13,20€: average cost of a free return for an e-retailer.
  • 0,99 €: what H&M charges customers to return an item.
  • 1,95 €: what Zara charges customers to return an item.
  • 25%: Proportion of non-food products returned online in 2021.
  • 15%: Spartoo’s return rate in France.
  • 12-13%: Return rate in Southern countries.
  • 25%: Return rate in Northern countries.
  • 30%: Return rate in Germany, according to Spartoo.
  • 50%: Return rate for textiles in Germany.
  • 1-1,5%: Share of free returns in Spartoo sales.
  • 10%: Increase in Spartoo’s logistics costs last year.
  • 60%: Return rate for some German players with fractional payment.

E-retailers discontinue free returns

With rising fuel prices and general inflation, free returns have become increasingly difficult for e-tailers to afford. So, since 2022, we’ve been witnessing a step backward. Online fashion retailers such as Zara and H&M have ended this practice. H&M now charges €0.99 for returns, which is deducted from the customer’s refund. Zara charges €1.95.

The impact of this reversal is significant. In fact, according to Fevad, a quarter of non-food products ordered online in 2021 had been returned. In fashion, this trend is even more pronounced (50% returns for Zalando). Therefore, Free returns are a “privilege” granted to members of certain loyalty programs. Amazon, for example, has launched a service for its Prime subscribers, enabling them to try on up to 6 garments.

The challenge for online retailers is to remain flexible while protecting their margins. Free returns will still be possible if the customer visits the store, reinforcing synergies between online and offline. Physical stores are set to become increasingly “phygital.” We invite you to consult our analysis of customer expectations regarding digital devices in physical retail.

Despite all this, many retailers have realized that free postal returns remain a major revenue-generating challenge.


Customers who paid their return postage reduced their spending at this retailer by 75% to 100% within two years.


Free returns: up to 457% more sales

Free returns can boost sales by 158% to 457%. This is the result of research published in the Journal of Marketing. Contrary to far too much research, the results come from:

  • longitudinal research, i.e., one that observes a phenomenon over a lengthy period
  • from “primary” data (i.e., data that reflect, without bias, the actual behavior of the population observed).

With this research, the authors challenge the current trend of (re)charging for returns.

As the authors write in their abstract:

Contrary to retailers’ assumptions, neither the positive consequences of free returns nor the negative consequences of return fees could be invalidated or reversed when customers’ perceptions of fairness were considered. Depending on perceived inequity, customers who paid their return shipping costs reduced their spending at that retailer by 75% and 100% within two years. In contrast, free returns for the consumer resulted in customer spending at the considered retailer that was 158% -457% higher. The results suggest that online retailers should either institute a free returns policy or, at the very least, examine their customer data to determine appropriate responses to customer behavior.

The question is: should sales or profits be the priority? Although these two objectives are not mutually exclusive, the methods are sometimes quite different. One thing is for sure: customer loyalty is affected.

The end of free returns: a positive signal?

The end of free returns in e-commerce is also a sign of the times. Low-interest rates had made money “free,” prompting companies to embark on conquest strategies. The priority was to win market share, not necessarily to be profitable. Zalando, for example, generated a profit of just €16m in 2022 despite sales over €10 billion. The high return rate has always weighed heavily in the balance. The end of free returns may signal a more virtuous period.

The ecological cost of free returns

In France, in 2021, 25% of products ordered online were returned by customers. This has a significant impact on the environment.

However, the ecological impact of returns is difficult to measure, as the logistics chain varies from one e-retailer to another. What is certain, however, is that this will make customers think twice before ordering. Solutions such as 360° images, sizing guides, and online after-sales services are being implemented to reduce the return rate. If a return is maintained, it can reduce its ecological impact by optimizing the logistics process. Clothing can often be put back on sale, while electronic products must be sold second-hand or reconditioned. Many retailers, including Zalando, have taken steps to extend the life of products by proposing second-hand offers.


In France, the average cost of a returned item is estimated at €13.20.


Good for profitability

The end of free returns will also bring savings. In France, the average cost of a returned item is estimated at €13.20. Between transport and internal costs (verification, management, etc.), the cost of a return is far from negligible in a sector where margins are tight. Our report on e-commerce trends showed that the apparel sector was suffering the most.

A positive signal for techctrl+cnological solutions

Numerous technological solutions already exist to help customers make the right choice when ordering:

  • Start-up Veesual, which uses generative AI to let you “see” clothes on mannequins that look like you before you buy.
  • Treedys, which advises you on the ideal size according to the brand and your morphology.
  • Ditar uses augmented reality to let you try on glasses before you buy.

Free returns conclusion

Conclusion

The gradual end of free returns is the end of a cycle in which e-retailers seek to gain market share at all costs. The rise in interest rates inevitably triggered strong consolidation. This has led retailers to cut costs and force customers to adopt more virtuous behaviors.



Posted in Marketing, Research, Strategy.

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