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E-commerce: Have we reached the point of diminishing returns?

Lauretta Roberts
12 May 2022

This month global fashion giant Zara quietly introduced a line to the terms and conditions of its website to explain that it would now be introducing £1.95 charge for e-commerce returns. Returns to store were still free, but the charged would be deducted from the refund amount if an item or items were returned via mail.

It's a significant move and one that is likely to be welcomed by fashion retailers industry-wide. If Zara can get away with it (and so popular is Zara that it's hard to believe that customers will turn away en masse) then it will give others permission to do the same.

To this point it was widely assumed that charging for returns was an impossibility. Placing any hurdle in front of a consumer when they arrive on your website or app to buy was seen as a no no. Conversion was key and the slightest inconvenience or potential added costs would lead to abandoned baskets, it was assumed. But is that really true? And in any case, with return rates for some fashion product running at up to 40%, are free returns a luxury that retailers can no longer offer.

According to global strategists Roland Berger (see more of its analysis and commentary below), the cost of returning a £30 fashion item can be up to £20. Even, assuming retailers can get a product back on sale quickly enough and sell it at full price before any seasonal promotions kick in, any margin on lower priced product simply evaporates. 

Retail analysts too are highlighting the issue. During the pandemic online retailers enjoyed a purple patch where returns were slashed in half or more due to the nature of the product bought (leisurewear, pyjamas and sportswear present fewer fit issues) and consumers simply not venturing out to the post office. According to Rhenus Logistics (again, more from them below), at the end of 2020 return rates were running at around 17%. Now, it's anything up to 40%.

Both ASOS and Boohoo have cited spiralling returns, and the associated costs, as a significant reason for dented profits lately. City analysts believe that they and others like them will have to bite the bullet and charge for returns.

Danni Hewson, financial analyst at AJ Bell, commented: "For years, customers have treated fast fashion retailers as a two-stage transaction. Buy multiple sizes of the same items and send back the ones that don’t fit. This is costing a lot of money and the only way to discourage this activity is to start charging customers to return products. Although this action risks dampening demand, more retailers are going down this path and so it wouldn’t be out of the ordinary."

Perhaps now that Zara has taken the plunge, others will follow in quick succession. But whether they do or don't charge, it's clear retailers need to focus their efforts on making the returns process as slick as possible and, better still, try very hard to avoid a high level of returns in the first place.

In this extended feature we speak to a number of industry experts from logistics and supply chain management experts to online fit specialists and strategic consultants to gain their insights into how retailers can ensure they don't reach the point of diminishing returns.

Caroline Ellis, Advanced Supply Chain Group

Caroline Ellis, Advanced Supply Chain Group

Caroline Ellis, commercial director at supply chain management specialist, Advanced Supply Chain Group

“Decisions about returns services must be consumer focused. There’s often lots of talk about introducing charges for shoppers to send items back or taking steps to actively discourage people from returning goods. These possible actions will be driven by a desire to protect against margin dilution, which is critical for retailers. However, if changes to returns strategies discourage sales, they quickly become very counterproductive and will have even more of a negative impact on margins.

“Fashion retailers and brands draw on a wealth of data about their customers to give them exactly what they want. For example, they analyse trends to ensure they’re stocking the right style and colour of clothes each season to maximise sales. This same data-driven approach must be applied to returns.

Advanced Supply Chain Group partnered with The Industry.Fashion and surveyed 2,000 fashion shoppers. This found a flexible returns policy was a top-ranking factor, encouraging purchasing amongst 41% of shoppers. If shoppers want convenient, cheap or no-cost returns, and actually want the freedom to order clothes, which they can easily send back, then companies must look at how they optimise supply chains to make this a feasible reality. 

"In some cases, the costs of restoring a returned item for resale can erode margin past the point of profitability."

“Real-time, accurate stock inventory and supply chain data will provide visibility about where efficiencies can be achieved during the movement of goods. It can also provide a granular view of the profit and loss performance of singular items, enabling retailers to make more informed decisions about how returns are handled. In some cases, the costs of restoring a returned item for resale can erode margin past the point of profitability.  

“By enhancing supply chain efficiencies and reducing any errors or waste associated with returns, retailers can address margin dilution to make returns an affordable option, both for them and their customers.”

Retail is an ever-evolving industry, constantly under pressure with globalisation and e-commerce having been most impactful. As the world of digital continues to transform, the way consumers shop continues to evolve as they discover new opportunities both online and offline. Shopping has become relative to context, person and place and is no longer about what and where, but how and when. What this brings is real pressure on logistics companies in the supply chain to react quickly to changes in consumer needs.

Tony Mannix, Clipper

Tony Mannix, Clipper

Tony Mannix, CEO at leading e-commerce logistics experts Clipper Logistics

"A return is an important customer touchpoint with a retailer, and a good, fast and seamless experience is likely to create repeat orders. Returned goods tie up a huge amount of stock and working capital and can become a retailer’s biggest single inbound source of supply, presenting significant operational challenges. If handled correctly, an efficient returns process can promote customer loyalty whilst maximising resale value and minimising losses. Process time is key, the customer is seeking a refund and the retailer wants the inventory back for resale as soon as possible. The returns hub needs to be extremely flexible, be interfaced directly to the retailer’s systems and be seamless in operation.

"‘Free returns’ are part of the competitive landscape in retail, where the ease with which a returning customer can transact with the retailer has a strong impact on their likelihood to repurchase. Research shows that 64% of customers are likely to repurchase if you offer a ‘free return’. For retailers, this means that speed of return and its conversation to Grade A stock quickly is imperative. Consumers expect to be provided with a pre-printed returns label and reusable packaging. They also expect the assurance of timely reimbursement. This is being driven by an ever-increasing percentage of purchases made via mobile devices.

"Returned goods tie up a huge amount of stock and working capital and can become a retailer’s biggest single inbound source of supply, presenting significant operational challenges."

"Our processes are designed to support retailers. We believe it is imperative to deliver the convenience customers expect when going through the returns process, without adding extra cost and complexity to the supply chain, especially at peak.

"But, despite the acceleration to online, the high street is not dead, but the seamless integration of online and offline has become ever more important. We all love the convenience of Click & Collect, for both retailers and consumers. But in today’s rapidly evolving market, customers demand more; online shopping is booming, contactless retail is growing, and standard parcel delivery services no longer cut it.

"It’s why we developed Clicklink – it combines the convenience of Click & Collect with streamlined returns management, supporting retailers in optimising an omnichannel approach. If we can encourage more consumers to do things like Click & Collect, you also create footfall on the high street that benefits retailers, coffee shops and everyone else.

"Click & Collect also enables a more sustainable and efficient supply chain solution for retailers. The orders are collected, collated, and delivered in a retail friendly manner. This allows us to consolidate deliveries, reducing the number of vehicles on the road. The returning fleet also delivers any returns directly into our returns management service, allowing items to be made ready for resale much faster, maximising inventory. Our returns solution Boomerang also offers a repair service that ensures items that are damaged, are repaired and then placed back into circulation for re-sale, reducing the number of items that go to landfill."

Jurrie-Jan Tap, Bleckmann

Jurrie-Jan Tap, Chief business development officer at global logistics group, Bleckmann

"To reduce returns retailers need to understand why consumers are buying an item - that information is crucial. If a customer ever sends something back it’s usually because it’s not the fit they expected. There are ways of avoiding issues with fit such as detailed product descriptions with measurements and high quality and realistic photography, as well as the use of online fit technology.

"Allowing people to order three sizes and send two back is not the way to deal with this. If a customer orders three of the same item in different sizes, reach out with automated software, that can send a message saying 'I see that you are ordering multiple sizes, I’m pretty sure you need this one. Can I help you with this?'

"Retailers also assume that if you put any hurdles up for returns then people won't buy and I'm not so sure.

"If you charge for returns, you will find that people suddenly know what they want."

"When it comes to charging for returns, what you could say is that returns are only free if there is a problem with the product and not because you've just changed your mind and decided it's not what you want. If you charge for returns, you will find that people suddenly know what they want.

"You could take a similar approach to charging for deliveries. People don't always needs things urgently. If you have the option of receiving something in three, four or five days for free, instead of next day, people might take it. You can have options built into your website [for delivery and returns] and only some things are free.

"Getting returns back on sale as quickly as possible is key and there are ways you can encourage customers to return items quickly. People have always considered that putting a returns label in the box is the best way, but, again, I would challenge that. We have software that can generate a QR code for your return and you take your parcel and the QR code to the Post Office and they scan it. When customers go through the process of creating a QR code on their phone, you can ask for information on why they are returning an item as well.

"This way you can avoid having all these labels that are a waste and also with labels you get zero information on why something is coming back.

"You could do a similar thing with returns windows. You can offer a free and 100% refund if people return an item with two weeks but introduce a bit of a penalty if they take longer. It could still be possible for people to get their returns for free if they play by the rules.

"I think brands want to charge for returns but they are waiting for the big retailers to take the responsibility first."

Siobhan Gehin, Roland Berger

Siobhan Gehin, Roland Berger

Siobhan Gehin, head of the UK retail and consumer goods practice at global strategists Roland Berger

"Our research estimates that the cost of returning a £30 fashion item can be up to £20. With the online fashion market now worth £32bn, and with around 30 per cent of those fashion items returned last year, and the scale of the problem continuing to grow, reducing this business cost is critical.

 

"There is an irony insofar as customers are well-known to favour sellers who make returns easy; therefore, fashion retailers have been driving ease of returns to earn customer loyalty and also get it back into stock ready to re-sell quickly. Returns that sell within two weeks of the original sale can mean the difference between reselling at full price versus having to mark down the item. However, returns have now exploded to an extent where retailers are having to rethink their strategy.

"Returns that sell within two weeks of the original sale can mean the difference between reselling at full price versus having to mark down the item. However, returns have now exploded to an extent where retailers are having to rethink their strategy."

"There are many approaches that can be taken to help prevent the return in the first place and mitigate the cost of reverse logistics. The solutions do, however, need to embrace a better understanding of customer needs, improved data analysis and investment in technology. Above all, decisions need to involve all the key stake holders from the buying, merchandising, ecommerce, logistics and supply teams.

"The most common reasons why a customer makes a return - because it  does not fit or meet expectations - still hold true. Improvements need to be made at the development stage:  design decisions need to be truly customer-centric and based on accurate data; more work can be done on size/fit optimisation.

"On the selling side, there are many innovations that will help better present the product: 3D imagery and virtual fitting tools online are among the technologies in which leading players are investing. Any improvement or innovation that brings the customer closer to the product online will be a considerable help.

"However, among the “hidden” costs of returns is that around 10% of approved returns are fraudulent (e.g. wardrobing – buying with the intent to return after one wear). Introducing fraudster detection analytics can reduce the impact. For example, a persistent pattern of buying before the weekend and returning an item early the following week should be a red flag.

"The lost margin via disposal, however, accounts for the biggest cost of handling returns, about £3-8 of the £20 cost of that £30 item, so working with recommerce platforms is becoming more common, as is the opening of outlet stores and other “deadstock” routes such as off-price retailers.

"As businesses look to become more sustainable, addressing the “green” issue on returns, could see the introduction of more drop off points to reduce the mileage of transport vehicles, changing to electric vehicles and moving to paperless returns –areas where cost savings are also happily in tandem with environmental benefits."

Harry Wheelhouse, Rhenus

Harry Wheelhouse, Rhenus

Harry Wheelhouse, Sector Manager, Rhenus Warehousing Solutions, Lutterworth

"Generally, the fashion sector has the added pressure of dealing with a high rate of returned items, sometimes up to 40%. In late 2020, consumers were returning around 17 % of clothing bought online.

“We’ve seen many consumers move away from visiting high streets and shopping centres, to browsing items from the comfort of their own homes and making purchases at the click of a button. Despite this shift, however, research shows that 46% of shoppers who return products prefer the convenience of returning unwanted items to physical stores. In comparison, 32% preferred to return their packaged items through the Post Office.

“Methods of purchasing fashion are always evolving, especially as a result of the e-commerce industry experiencing rapidly increasing demand. For many retailers, it is becoming increasingly common for consumers to expect more choice and faster delivery, whilst still desiring lower costs, excellent customer service and a more personalised experience.

“On top of this, many consumers now want free returns too, and a negative returns experience can impact brand loyalty.

“In order to cope with this increase in both demand and returns, and to make the process quicker yet still cost-effective, retailers are turning to third-party logistics suppliers, who offer post-sale Value Added Services, know-how and scalability in order to process returns efficiently.

"Once the return has been made, refunding the money to consumers as quickly as possible is vital. This has a huge impact on brand loyalty."

“The use of experienced fashion operatives and the development of innovative solutions and automation can guarantee an increase in delivery speeds, from retailer to consumer and back again, ensuring that stock is able to quickly be returned to sale. From a cost perspective, evolving these systems will also provide retailers with a more beneficial, long-term solution.

“Once the return has been made, refunding the money to consumers as quickly as possible is vital. This has a huge impact on brand loyalty, and is one of the key factors that determine whether the consumer will continue to buy from a specific retailer.

“As a leading logistics provider ourselves, we believe adaptability is key. Making it a priority to keep on top of the ever-evolving requirements of the fashion sector, by continuously improving speed, innovation and efficiency, and partnering with third-party suppliers, can improve the returns process, costs and retailer-to-consumer relationships.”

Tia Wallace, DHL

Tia Wallace, DHL

Tia Wallace, Director of Business Development, eCommerce, DHL Supply Chain

"The drive to offer shoppers ease and convenience has led to an expectation of free shipping and returns. However, the ubiquity of free returns can cause significant problems for both the retailer, the supply chain and importantly, the environment. Key to tackling this is designing product flows and cycles in the most suitable, efficient, and environmentally friendly way.

"For logistics teams one of the challenges lies in enabling customers to return products as quickly as possible, and then ensuring they are processed effectively to minimise loss in value and reduce the risk of products being disposed of because they’ve become ‘outdated’.

"Once a return is received, the next stage is smart handling of the product to extract maximum value and reduce waste. Our digital returns system helps to tackle this problem, ‘grading’ returns and enabling colleagues to make the right choices on what to do with the product next, whether that’s repatriating the stock to enable it to be re-sold at full price, or re-merchandised at a discount rate, or recycled.

"In cases where speed is not the main objective, there are still ways in which retailers can bring down the financial and environmental cost of returns, for example combining shipments to reduce wasted road miles, and combining consumer deliveries along with collections."

"In cases where speed is not the main objective, there are still ways in which retailers can bring down the financial and environmental cost of returns, for example combining shipments to reduce wasted road miles, and combining consumer deliveries along with collections. To match customer return preferences with logistics capacities, digital portals are a valuable tool and logistics companies play a key role in making these solutions more widely available, as they have the scale and breadth that no single retailer or manufacturer has.

"Digital technologies can also have a significant impact in reducing the overall need for returns by offering more meaningful information to guide the purchase decision. For example, VR-assisted garment size determination can increase the likelihood that the product received by consumers matches their hopes and expectations. This can potentially reduce ordering of identical items in adjacent sizes, which is typically caused by a lack of information and certainty around sizing. Moreover, campaigns promoting consumer awareness of the environmental impact of overordering can be a helpful approach.

"While there’s still work to be done, reducing returns and implementing effective circular product flows, presents an exciting new opportunity for the fashion industry to reduce emissions and waste, and improve profits."

MySize

Javier Brandwain, Chief commercial officer at online fit specialist, MySize

"With consumers more attuned to online shopping experiences, it’s more important than ever for e-tailers to continue to offer better shopping experiences through strategic design and data-driven enhancements.

"E-tailers need to satisfy a wide variety of consumer concerns through AI-driven measurement technology, meeting the challenges of at-home purchasing experiences and therefore reducing returns. Implementing this technology suggests an overall increase in profitability potential for e-tailers/retailers.

"As pandemic restrictions come to an end, MySize sought to better assess how shoppers make key purchasing decisions around sizing when ordering apparel and the elements that most impact customer returns.

"MySize surveyed 1,000+ respondents across Europe, using a representative sampling method of all ages/genders. Respondents ranged in age from 18-65+. MySize asked 10 questions regarding customer preferences and experiences in online and in-person shopping, as well as reasons for returning apparel/footwear.

"33% of consumers admit to engaging in bracketing, a practice where one buys multiple sizes/colours/styles of an item to try on at home with the intention of returning most items. Bracketing costs retailers millions a year."

"The data derived from this survey revealed that 50% of consumers return apparel/footwear bought online because of sizing issues. 33% of respondents admit to engaging in bracketing, a practice where one buys multiple sizes/colours/styles of an item to try on at home with the intention of returning most items. Bracketing costs retailers millions a year, but it’s viewed as a tool that gives peace-of-mind to consumers who are unsure if garments they order online will properly fit them.

"Bringing customers the convenience of at-home shopping, and the peace of mind knowing they can confidently order a garment that fits, is mission critical. Superior at-home, reliable measurement and sizing technology can help deliver what customers want, leading to increased customer accessibility, lower return rates, and a significant boost to consumer satisfaction and higher-value purchases.

"With ‘wrong size’ as the #1 reason for returns across the board, it’s time for retailers to step up to the challenge and think about sustainability."


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