Why Zara’s return fees might backfire: “The answer is in technology solutions, not charging consumers”

Online shopping returns cost consumers a total of £2.2 billion on delivery and returns fees in January 2020 alone, with one in every three orders being returned. While many ecommerce brands have been allowing consumers to return products for free, it’s undoubtedly an expensive way to run a business, with returns costing an average of £1.18 each.

Last week, high street fashion brand Zara took the bull by the horns and announced it would start charging customers £1.95 for each order returned. This was a landmark move, not only in the fashion industry, but across the wider ecommerce sector as well.

While it will be interesting to see the data – and ultimately whether the fee has an impact on the number of products ordered from and returned to Zara – whether the industry takes notice and follows suit or not will have larger significance.

Return rates skyrocket

An increasing number of retailers are becoming more concerned about the number of returns, with rates skyrocketing during the pandemic.

According to a National Retail Federation (NRF) survey, a record $761 billion of merchandise was returned to retailers last year, a figure which surpasses the entire US national defence budget.

Approximately £60 billion of those were from the UK.  £20 billion of which generated by items purchased from ecommerce merchants, according to a recent study by online operations firm Brightpearl.

“It’s no surprise that 70% of firms are worried about the growing impact of returns on their bottom line,” Brightpearl’s vice president Mark Hook told Charged.

“In today’s consumer-led retail environment, the cost of returns could spell problems for retail business owners if they do not have visibility over regularly returning customers.”

Consumer attitude is key

It is important for retailers to keep consumer attitudes in mind if they are considering implementing a similar pricing strategy for their returns – and this could be the sticking point.

“Without this, retailers will struggle with the definition and consistent application of their returns strategies,” said Hook, warning that retailers could face a resulting backlash from otherwise loyal customers, especially if they feel they are being unduly hit by new ‘unfair charges’.

Hook added that there could be a danger of retailers damaging their brand loyalty if they look to adopt a return fee process, which he adds is likely to be a barrier to adoption of the practise by the wider ecommerce sector.

“That’s because a third of shoppers say they’ll abandon an online purchase if no free returns were offered,” Hook said.

“To an extent, the genie is out the bottle, and charging customers for returns may be seen as a form of punishment.

“That could have a detrimental impact on sales and customer loyalty.”

One way of perhaps mitigating the “punishment” factor of being charged for the return is by deducting it off the cost of the refund; a move that Zara has adopted.

Free returns or ecommerce fraud?

Aaron Begner, EMEA general manager at digital solutions provider Forter, pointed out that many online retailers have struggled with free returns as they seek to balance customer experience with the abuse of these digital benefits, which he describes as “ecommerce fraud”.

“The growing volume of returns and associated abuse, including practices such as wardrobing or purchasing multiple items and returning the majority, is negatively hitting margins to the extent that merchants feel the only choice is to charge for returns and bear the high cost to the customer experience, and brand loyalty and reputation,” he stated.

In reality, Begner believes there is a way to deliver both, but adds that it requires the ability to know and trust every good user at the start of every interaction.

“Using technology to enable this trust, you can enable a digital journey that provides high value, competitive benefits to good customers like free shipping, and simultaneously apply policy mechanisms that combat fraudulent and abusive buyers in real time,” he continued.

“In doing so, merchants can deliver a differentiated digital journey, and maintain a high customer lifetime value while eliminating risk.”

How data can save the day

Hook also believes that data and the right software are pivotal in order to process returns in a more decisive way.

“Consumers are looking for fairness and choice when returning merchandise,” he said.

“Having the right software in place that offers a single view of returns data is essential to quickly identifying your cohort of problem shoppers, so you can make more informed decisions on how to combat them – while at the same time maintaining your relationships with loyal customers. Your returns strategy doesn’t have to be an ‘all or nothing’ approach.

Hook believes that retailers don’t need to start charging consumers for returns and the issue lies more within the strategies they deploy in order to manage them.

“Retailers aren’t helping themselves in this area. A staggering 69% of retailers are not deploying technology solutions to automate and process returns.

“This striking statistic highlights how retailers themselves are exacerbating the cost and complexity of managing returns. The answer to the returns issue is in technology solutions, not passing the cost onto consumers.”

If retailers are able to implement a savvy tech solution into their returns processes then the need to charge consumers will in turn begin to diminish. This, in turn, will also mean that merchants are able to keep their brand loyalty intact and consumers coming back for more as they keep a tight check on the climbing number of returns.

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