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Why are you going to pay for online returns

One of the staples of online shopping was free returns, but that’s not the case anymore.

After years of subsidizing, more retailers are charging customers to ship unwanted items. It’s a risky move because shoppers are used to buying an item in different sizes and colors and returning anything that doesn’t fit for free.

The list of retailers cutting back includes Zara, Abercrombie & Fitch and Boohoo. In the U.S., the number of large retailers requiring return fees has risen from 31 percent to 40 percent this year, according to research by Narvar, a logistics software company.

“I really expect others to follow,” said Honor Strachan, an analyst at research and consulting firm GlobalData Plc. “It only takes one and the rest will think, ‘Well, if Zara can do it, so can we.’

The decline in profits comes after the e-commerce sector has spent the past two decades on supply chain and customer service costs. But returns were largely unaffected, and they remained one of the few places with a lot of room to cut costs. They are expensive because of the work involved in shipping them, inspecting them and displaying them for resale.

Investors are also demanding that online businesses increase profitability (or be profitable) in a shift away from a constant focus on growth.

The pandemic also played a role in sparking a surge in online shopping – which has since receded – as the masses steered clear of brick-and-mortar stores. This has meant more returns, while disruptions from Covid-19 have created a glut in categories such as clothing, which is expected to lead to increased discounts and opportunities for shoppers to return items if they see better deals.

The volatile economic environment has added to the pressure this Christmas shopping season.

According to Amit Sharma, chief executive officer and founder of Narvar, consumers who are experiencing the highest inflation in four decades are more frugal, increasing the chances that they will second-guess a purchase and return it. Higher transportation, energy and labor costs have made profits even more expensive, raising the stakes for chains to change behavior.

“That’s the big question: How do we reset expectations?” said Sharma, who previously held executive positions at Apple and Walmart. “Everybody loses money on shipping and returns.”

Online retailers realized early on that they needed to gain the trust of customers before handing over their credit card number to a website and buying a product they hadn’t seen in person. Free returns have helped keep consumers comfortable. The first was shoe retailer Zappos, now owned by Amazon, which allows customers to order multiple sizes and return what doesn’t fit without extra fees.

The industry followed suit and now it will be difficult to wean the masses off free returns. The practice of buying multiple items online to try on at home – now known as bracketing – has increased during the pandemic as fitting rooms have been closed. According to this year’s Narvar survey, about two-thirds of U.S. shoppers engage in this practice.

Social media platforms such as TikTok and YouTube have made bracketing more popular with so-called “try-on” videos, in which subscribers are asked to comment on whether the buyer should keep or return the purchased items.

Return fraud, such as returning counterfeit goods, is also on the rise. In the U.S., about 10 percent of the $761 billion in revenue from all purchases last year was fraudulent, according to research by the National Retail Federation, an industry group. And online shopping has a higher ROI – nearly 21 percent versus 18.1 percent in 2020.

Retailers are increasingly seeing returns as a threat to their business. ThredUp recently said that profitability is rising, which led to a $3 million drop in sales in the most recent quarter. And the online resale platform charges $1.99 for what it calls a “restocking fee” when a customer sends an item back.

London-based Asos cut its full-year guidance earlier this year, saying strong revenue growth in the UK and Europe hurt sales. He added that revenue growth, combined with inflation, was having a “disproportionate impact on profitability”, but said profits would remain free for customers.

Networks use many tactics to reduce the financial hit. Some shorten the time a buyer has to return an item. Bath & Body Works said it will not allow returns or exchanges on products that show “excessive wear,” a marked departure from the personal care brand, which allows customers to return used products.

Retailers like Amazon and Target take the low-cost approach, offering refunds but allowing the customer to keep the item. In this case, the retailer expects to save money by avoiding the expensive process of trying to resell the returned item. According to Narvar, this is a popular strategy, with a 1,700 percent increase in the number of merchants using this tactic in the first half of 2022.

Of course, this tactic doesn’t address the main reason so many online purchases return: customization. The industry has tried to use technologies such as augmented reality to help shoppers make better choices with virtual fitting rooms, but these tools have not been widely adopted despite heavy investment.

“Sizing is a big challenge to solve in e-commerce, especially with apparel,” said Katja Walsh, chief strategy and artificial intelligence officer at Levi Strauss & Co. – This is something that companies have to decide, and we are doing everything possible to do it.”

Alison Smith and Kathy Linsell

https://www.businessoffashion.com/articles/retail/why-youre-going-to-pay-for-the-online-return-mess/ Why are you going to pay for online returns

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