Should retailers offer free or paid returns

Should retailers offer paid, subsidised or free returns?

ZigZag reported a spike in eCommerce sales during April and May as many online buyers shopped from the comfort of their own home amidst worldwide lockdown measures. Global retail eCommerce sales have grown between 24-49% (PowerReviews & TechCrunch) as companies such as Zalando grew by 11% online, H&M online sales increased by 30%, and boohoo reported YOY growth in April.

However with clothes being sent directly to cH&M experiences growth in online sales during lockdown zigzagonsumers’ doors, the bedroom is quickly becoming the new fitting room. As is the case with fitting rooms, not everything holds up to scrutiny in the mirror, so naturally the eCommerce boom in sales has had the knock on effect of increasing the volume of returns.

Best returns practices amidst COVID-19 disruptions

In this current climate, with carrier service delays, increased airfreight costs, surcharges, and inability to deliver and collect from some regions in complete lockdown, ZigZag advised retailers to increase their returns policy and move to paid or subsidised returns. Increasing the window for customers to make a return reduces the strain on customer services dealing with panicked customers and reduces the impact of the logistics network disruptions.

Moving to paid or part-paid returns helps retailers offset some of the additional costs they have been charged with. An added benefit of passing on some of the returns cost to consumers is that they think twice before making a return, especially those of low value, and helps combat deliberate over-purchasing. 35% of consumers admit to deliberately over purchasing which can be done for a number of reasons. A consumer may over purchase to make sure they get the right size the first time, if they have an event coming up shortly and want options, or if they want to take advantage of a free delivery offer when you spend a certain amount.

The case for free returns

Amazon Pickup and Returns Centre

Free returns was popularised as companies started to shift online in the late 2000s and early 2010s. eCommerce had really started to take off. Stores transitioning from brick and mortar stores and growing their eCommerce presence used free returns and other methods to lure new customers, whilst emerging pure play eCommerce retailers made their stores as attractive as possible to entice wary shoppers online. Amazon is often touted as the pioneer that started the shift towards eCommerce, focusing on fast deliveries and simple returns processes. But competitors such as Zappos trying to get a foothold in the online market after Amazon probably caused the rise of free returns.

89% of buyers check the return policy before purchasing, highlighting the importance of having an attractive returns window and often free returns. With so many eyes on the returns policy before a purchase is even made, it is still essential that retailers are at minimum still offering the same as their main competitors. Invespcro stated that 49% of retailers offered free returns in 2016 and IMRG estimated that around 53% offered free returns in November 2019. So it’s important to benchmark against competitors. Free returns can be used as a tool to gain online market penetration but if a retailer has a considerable lead on its competitors not offering free returns, it could be incurring an unnecessary cost.

Reports from Invespcro identified that it may not even be just the price of making the return that’s important to the consumer, but the expectation and principle that it should be free. The percentage of people that would purchase a $1000 item drops from 27% to 10% when free return shipping is removed from the offer. At $1000 you’d expect free returns to play less of a significant role, but that is not the case according to research from Invespcro.

Research completed by Klarna in early 2019 did uncover that 78% of online shoppers would buy more if there are free returns. Meanwhile, 86 per cent said the option of free returns would create loyalty and bring them back. These are both clear indicators that free returns play a large role in customer satisfaction, retention and acquisition. Sales can be won and lost on the returns policy page.

The case for paid or subsidised returns

We have actually seen the start of a gradual shift towards paid or subsidised returns over the last 12 months, and much of that change was seen before the coronavirus pandemic. Whilst IMRG did report that of their 300 surveyed retailers 158 (53%) offered free returns in November 2019, only 102 (34%) still offered free returns by the start of April 2020 (“IMRG Data Webinar: Returns policies during the coronavirus outbreak“). Now this could be down to three factors. It could be an indication retailers move to free returns to bolster Black Friday sales, where competition is high, or it could be in response to uncertain financial positions caused by coronavirus (advice echoed by ZigZag).

Retailers adopt Free Returns for Black Friday ZigZagHowever, it could also be an indication of the transition towards paid returns. As more and more customers switch the shops for their laptops, there is less of a need to convince consumers of the eCommerce benefits. Richard Lim, CEO of Retail Economics stated “45% of consumers bought something new for the first time online that they only previously bought in store.” With the barriers broken for many consumers previously hesitant to shop online, the use of free returns to attract them from the physical stores may become needless.

Returning parcels take a £60bn a year chunk out of UK retailer’s bottom lines. With 80% of retailers forced to furlough staff throughout the pandemic, the vast majority closing stores temporarily, and some, for example Oasis and Warehouse, entering administration, now is the time to tighten belts. Even with a best-in-class returns management solution offered by ZigZag, which reduces the cost of returns by up to 60%, returns still offer up a large, unwanted and unavoidable bill for retailers every day. Passing on the cost of returns may not even be a choice for many, but a necessity to make sure they can keep their stores open and their employees paid.

One of the biggest reasons is to deal with serial returners or to at least discourage people from buying multiple versions of the same product. Indeed, a survey done by Sale Cycle revealed around 19% of shoppers admit to ordering the same item in different sizes or colours so they could be sure of getting the fit right on the first attempt. This type of consumer will guarantee e-tailers are always footing an extra bill on every order.

By moving to a paid or subsidised return, consumers are discouraged from this behaviour and the retailer gets to recover the cost on those that continue. If this decision is supplemented by offering free exchanges, then the customer won’t need to buy multiple items, the retailer gets to save a sale at the smaller cost of a returns journey, and the customer is overall more satisfied than they would be having to pay for returns just to get the fit right.

An intuitive, flexible returns process

ZigZag Best in class returns management solutionOur own data has shown in the past that whilst online returns will increase by 4% if you offer free returns, sales conversion goes up over 25%. So the benefits clearly outweigh the cost. We see retailers adopt different policies in different markets in line with local customer expectations – usually free in the UK, US and Germany, but paid elsewhere. Returns do not need to be free everywhere!

ZigZag’s solution is driven by powerful data analytics that makes quick decisions on whether to consolidate returning items for the most energy-efficient and cost-effective return to the retailer, or to move them to the best local marketplaces giving them the best chance of being resold. The solution can also use data to identify serial returners and VIP customers. The retailer can then use this information to make better decisions on their returns policy. For example, VIP customers could be treated to free returns to ensure they don’t switch to competitors, whereas serial returners can start paying towards their returns in part or full. Additionally, retailers could implement a paid returns policy, but advertise certain products as free returns depending on cost, customer status, or the products tendency of being returned.