In the face of escalating return rates and dwindling profits, a growing number of retailers are resorting to charging for returns. In 2023, the percentage of retailers imposing return fees in the U.S. increased by 31% to 40%. Our data reveals that 53% of merchants now charge for returns. In the UK, the split between free and paid returns is almost even, with 48% of retailers charging for returns. This figure significantly increases in the fashion industry, where 79% of retailers now charge for returns.
However, the ongoing debate between free and paid returns may be obscuring the larger issue. Charging for returns does not address the underlying causes of return-related problems: slow processing, high restocking costs, and dissatisfied customers.
The Emergence of Paid Returns
The rationale behind implementing return fees is clear. Retailers are grappling with rising costs associated with processing, shipping, and restocking returns, all while losing potential sales from inventory that cannot be resold. By imposing return fees, retailers can recoup some of the return costs and potentially discourage unnecessary purchases and costly return-related behaviors.
However, paid returns may also deter new customers and reduce the lifetime value of existing ones. Free returns continue to be a powerful incentive, especially now that they are less common. One study shows that nearly 72% of U.S. consumers are more loyal to retailers that offer free returns.
A More Nuanced Approach to Returns
The problem with the paid versus free return debate is that it assumes all returns are equal. However, customers and their returns are unique. Different products require different outcomes when returned under different conditions or from different locations.
For instance, a small percentage of fraudulent or careless returners can disproportionately inflate costs. A global retailer attributed £100m of loss to just 6% of customers with high return rates. If they introduced flat fees on every return, it would recover significant costs, but it would be an overstep for 94% of customers.
The Need for Intelligent Returns
Our data shows that 63% of merchants consider returns a significant or very significant problem for their business, up from 57% the previous year. Additionally, 67% of merchants report that return rates have increased in the last year.
The solution to the returns crisis is not a simple choice between free or paid returns. It’s about controlling costs and implementing more intelligent systems to recover costs for the most inefficient cases, without negatively impacting the majority of shoppers. Retailers need return solutions that connect customer and order data to the returns process, allowing them to create customized rules that control their unprofitable edge cases and reduce return costs.
