Why are retailers charging for returns?

In light of high-profile cases of retailers introducing paid returns, it is clear that managing returns has become critical for profitability. The cost of returns varies widely depending on product category, seasonality, and return speed, impacted by postage, packaging, depreciation, labour, and missed sales opportunities.

For many retailers, that returns cost has simply climbed too high to continue to justify free returns.

However, striking the right balance between recouping costs versus deterring customers is critical. Nearly half (49%) of online shoppers have abandoned purchases due to unfavourable return policies. So, it’s a decision that shouldn’t be taken lightly.

Which retailers have switched to paid returns?

The list of retailers now charging for returns seems to grow daily.

The first bold steps were taken soon after the pandemic. Zara, boohoo, and Uniqlo, all switched to paid returns in 2022 or before. SHEIN adopted a flexible paid returns two years ago that provides free returns for first time orders and some other cases, but charges for high-returning customers.

Last year continued with a similar gradual uptake in paid returns from the UK’s biggest retailers. THG and Mountain Warehouse both kicked off 2023 with a small returns fee for its customers whilst other renowned retailers New Look, Next, Debenhams, and H&M also made the switch soon after.

The most recent and notable addition was ASOS, one of the UK’s leading fashion e-tailers. The company have added a £3.95 returns fee for customers not keeping a certain amount of their order. A fairly reason charge in the eyes of many. River Island and Pretty Little Thing are two other retailers that made the switch this year, with the latter still offering free returns for loyalty scheme members.

The fees they are charging are a mere fraction of the price it actually costs to get returned goods back through the supply chain and on the shelves, but the jury is still out on how customers will react. Although all early signs point to shoppers being understanding of the current climate.

How many retailers charge for returns?

With 588,000 e-commerce website and over 67,000 new e-commerce companies created in the last year in the UK, it is quite hard to get an exact figure. That’s a lot of returns policies to check.

However, ZigZag recently investigated the returns policies of 130 of the leading retailers in the UK. Of those special 130 brands, a third charged for returns, which is an increase of 17% in the past year alone. This figure rises to an astounding 63% of retailers on ZigZag’s platform offering some form of paid returns - clearly, they are acting on the advice of the returns expert!

Are shoppers willing to pay for returns?

The short answer is yes, but it depends.

71% of consumers would prefer paying a flat fee for returns rather than facing higher product prices (ZigZag & YouGov, 2024)

Nearly all customers would naturally prefer not to pay for their returns. That almost goes without saying. However, the reality is most are becoming more and more understanding that a free return for them is not a free return for the retailer.

When asked would they rather pay a flat fee for their returns or a higher, built-in cost for all products, nearly three quarters of consumers opted for the former. For some consumers, they might return such a high percentage of their returns it makes more finance sense to desire higher product prices.

For many, we suspect, it’s a matter of principle. The returns fee is unjust in cases where the retailer has failed to deliver a product worthy of keeping – either through misrepresentation, inaccurate size guides, or damage. This opinion was echoed by the consumer representative that featured alongside ZigZag Founder & CEO Al Gerrie on BBC Radio 4’s You and Yours segment on paid returns.

How much are shoppers willing to pay for returns?

So, not only do retailers have a tough choice to make in whether to charge at all for returns or not, but they also need decide how much to charge.

If you set the returns fee too low, the potential customer unrest at the change feasibly outweighs the sort of savings you’re likely to receive. Processing a return can cost retailers anywhere from just a few pounds to considerably more than £30 for luxury retailers or for products that require a two-man collection.

If you set the returns fee too high, you massively risk customers boycotting your brand in the future or deciding not to purchase from you in the first place. 49% of consumers have decided not to buy from a retailer because they didn’t like returns policy. Additionally, 79% of customers would not purchase from a retailer again if they suffered a poor returns experience. It’s fair to assume a high, say £20, returns fee would qualify both as a deterrent for first-time and future purchases.

Of the thirteen retailers mentioned earlier that have already moved to a paid returns model, the lowest fee is £1.99 and the highest fee is £3.95 (although it’s free for customers keeping £40 worth of their orders). The average across the brands came to a fee in the region of £2.50.

ZigZag’s latest Annual Shopper Research, created with Retail Economics, indicates that consumers are willing to pay £2 for returns on average. When taking into account income of the respondent, there wasn’t too much difference. The least affluent shoppers were willing to pay around £1.70 whilst the most affluent were happy to pay around £2.25.

Additionally, only around half of consumers would reconsider their purchase if the returns fee was £3 or less, and certain shoppers are even less likely to be dissuaded by a returns fee. Serial Returners are twice as likely as any other shopper to continue with their purchase after learning of a returns fee – despite being the type of customer most likely to end up paying it.

Do shoppers ever pre-pay for returns labels?

Some shoppers are even willing to gamble on their returns fee.

A quarter of consumers would pay around £2 to pre-purchase a returns label during checkout if it was cheaper than buying it at the point of return.

One of our biggest sports fashion retailers does exactly this and it has become a revenue stream for them as some customers inevitably buy and then don’t use their label. It is a popular option for self-aware serial returners, as they know they are likely to make a return, so would happily get the purchase done whilst they still have their payment details up for the initial purchase.

Should I charge for returns?

The first question you should ask yourself as a business is: “Are my customers willing to pay for returns?”

We’ve explored already that customers are willing to pay for returns, in general. Most shoppers value free returns, but it’s not a complete dealbreaker to charge, and they are slowly accepting it’s just part of shopping online now.

But are your customers willing to get out their bank cards? It’s all well and good that the general population is coming around to the idea of paid returns, but its only relevant if you customers mirror this shift. So, make sure you understand your customers before making any decisions.

An equally important second question is: “Can my business sustain free returns?”

Retail brands that recently completed our true cost of returns survey estimated that returns cost, on average, £13 to process.

Return fees aren’t just the cost of logistics getting the goods back from the customer, which are generally rising and include missed deliveries and surcharges. Retailers also need to consider the cost of: processing returns in the warehouse or DC, repackaging, grading, clearing, storing, reselling fees on marketplaces, and customer services dealing with enquiries. Businesses also need to incorporate the loss of sales due to products getting damaged or discounted.

The final question is: “Will I make waves by charging for returns?”

No business wants to take all the heat for the first money saving strategy that negatively impacts customers. Streaming services didn’t want to be the first to stop password sharing. Gaming apps didn’t want to be the first to introduce advertising.

But most of the hard work has been done. A strong number of respected retailers have made the brave first move and it’s paved the way for switch to paid returns that involves less consumer uproar and public shaming. You can be safe in the knowledge that you aren’t the first to make the move.

What is a refund deduction?

A refund deduction is sometimes used by retailers to refund their customers by taking the return fee from their overall refund. So, if the customer is returning 100% of their £40 order, they will receive 40 less the returns fee stated on the retailer’s returns policy, which might be £2.99. That means the customer only sees a total of £37.01 hit their bank account.  

A refund deduction can be the ‘simpler’ way of collecting a returns fee. In most cases, it doesn’t require a payment gateway, the customer just requests the refund to their original payment method. However, it has its drawbacks.

Should I offer returns through refund deduction?

It’s not best practice to offer a refund deduction.

You’d be surprised at the amount of customers that forget about the returns fee by the time your warehouse and the banks process their refund. This leads them to being frustrated at the perceived ‘hidden’ fee or error that has left them shorthanded and ultimately starting an enquiry with your customer service team. This is in turn only adds to your costs processing the return, takes up staff resource, and frustrates your customers.

A refund deduction almost acts like reminding your customers twice that you have a returns fee. They agree to it when initiating the return originally, then the return goes back through your supply chain and the refund is processed around a week later. Many customers then are left researching why the total isn’t what they expected, only to be reminded for a second time that you have a returns fee.

How should I charge for returns?

Offer return to store for free

Well first things first, for retailers with a strong store presence, why not offer free in-store returns alongside a paid alternative. We know that only 14% of customers would choose a paid option if they were offered a free Return to Store option alongside.

So, you are really driving footfall into your stores. New Look have seen great success here with over half of online returns being taken back into their stores.

Provide FAQs and clear communication

Sometimes people just need some awareness of the sorts of costs impacting retailers today to be more accepting.  Control the narrative. It’s not paid returns, but rather a returns contribution. The fees most retailers are charging doesn’t begin to pay for total cost of returns and why not let your customers know it’s simply too expensive to continue offering free returns without rising product prices.

Test and trial

Many retailers have utilised AB testing and trialled different price points before setting on a public stance. Make sure you track the impact on your sales and conversion to better understand the right price point for your customers.

Charge for premium options

Many consumers are willing to pay a surcharge if their needs are met - these are commonly attached to affordability, convenience, and sustainability. The right paid returns policy can facilitate all of this.

Home collection is the second most favourite return option for customers, with 27% of shoppers stating its their outright preference. 46% of customers overall would pay to use a home collection service. So there really is no need for retailers to bear the brunt of the home collection cost. Offer convenient, premium options, but charge your customers if they want to use them.

Understand and segment your customers

Returns fraud cost UK retailers £5.4 million in the first half of the year according to the National Fraud Intelligence Bureau. Paid returns are often a necessity to avoid these costs impacting the whole customer base.

In fact, a quarter of returns are caused by just 11% of your shoppers. Serial returners can be a real problem for your bottom line, so rather than charge all customers, you can explore ways to target the real problem makers. Charge for returns when a customer is only keeping a low percentage of a large orders, or track customers behaviour overtime and warn the biggest offenders.

One size does not fit all

The final point is that paid returns doesn’t need to be one size fits all or once and done. You can trial return charges in different markets, or with different customer groups like targeting serial returners specifically.

It’s up to retailers to use the wealth of data that’s now available to them through processing returns.

Free returns

However, free returns won't disappear entirely, nor are suggesting they should.

For some retailers, their customer base simply won’t accept paid returns, they’d much rather indirectly and unwittingly pay a higher price for their products.

Also, with so many retailers moving to paid returns, there’s a chance for some retailers to position themselves as a customer-first business that doesn’t charge. You could lean into it in your marketing and use it as a USP against competitors.

71% of UK consumers would pay for a membership with free returns, so retailers are likely to continue offering them as incentives.

How ZigZag can help

It can be a shock to consumers when these charges come in initially. So, as returns fees become more popular retailers need to ensure they keep up with the demand for flexibility and choice of returns options. During Black Friday, locker drop-offs alone were up 76% year on year. Offering the ability to make a return through the most convenient and accessible method is key to keeping consumers on board with paid returns.”

But there’s a growing acceptance from consumers to bare some of the responsibility for the cost of their return and retailers should be prepared to take advantage of that shift.

At ZigZag we can set up a payment page on your returns portal, so payment is charged upfront and customers keep control. The ZigZag platform takes a multitude of payment options including Credit Card, Debit Card, Paypal, Apple Pay and Google Pay in lots of currencies such as GBP, USD, EUR and many others.

ZigZag enables you to offer free returns or paid returns depending on the return reason. For example, a retailer might want to charge for ‘Doesn’t Suit Me’, but offer free returns for ‘Arrived Too Late’ or ‘Damaged’. Through the Returns Reporting Hub you can also better understand the revenues recouped from paid returns and how to continually optimise the returns experience.

Explore more here and get in touch with us today to start recouping the costs of your returns.

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