New Economic Realities   //   December 5, 2022

While big retailers levy return fees, smaller brands fear alienating customers

Making a return at a major retailer this holiday season may result in a hefty fee. But for smaller players, the strategy is more complicated.

For years, free returns were a staple of the holiday season, but now dozens of big companies are rethinking their policies to try to recoup money from rising logistics costs. Roughly 60% of retailers say they are changing their policies this year, with 67% charging additional shipping or restocking fees, according to a report from the return management solutions company goTRG. Today, Zara, Pacsun, L.L.Bean, Anthropologie and REI all deduct dollars from customers’ refunds if they make a return by mail.

Still, several smaller e-commerce brands told Modern Retail they’re wary to change their policies and risk hurting their relationships with customers. Loyalty is key to these smaller companies, and lost sales can add up in more ways than one.

“Even if the customer is not happy with their initial purchase, or even if we did something wrong, we want to make sure that we’re managing the long-term relationship for the customer,” said Sarah Hague, senior vice president of operations for Pair Eyewear, which she said accepts returns for 30 days with no questions asked.

“Shipping is more expensive than it’s ever been,” she told Modern Retail. “But it’s something that we’re kind of willing to take on, because we believe that it’ll help us pay off in the long run with our customer relationships.”

Retail returns are costly and time-consuming for retailers of any size. Sending an item “back from the customer’s house to the warehouse or the facility is really, really expensive, and eats into the profitability of each item,” Elissa Quinby, senior director of retail marketing at Quantum Metric — which shares consumer-led insights and data with clients such as Lululemon and Bass Pro Shops — told Modern Retail. According to the National Retail Federation, for every $1 billion in sales, the average retailer incurs $166 million in merchandise returns.

In January, the NRF said it expected U.S. shoppers to return $761 million worth of merchandise purchased in 2021. The total rate of return for the year, 16.6%, was up from 10.6% during 2020. Online returns are even more pronounced, with the return rate hovering around 21%, on average.

A ‘dramatic shift’ in approach

Over the past several months, numerous retailers — many of them apparel companies — have reversed their return policies. In July, online fashion retailer Boohoo started subtracting £1.99 from customers’ refunds if they made a return. In September, Bath & Body Works began limiting customers in some U.S. stores to $250 in non-receipted returns or exchanges within a period of 90 days. Abercrombie & Fitch now deducts $7 for online returns sent by mail, although customers can bring back items to a store for free. H&M is testing return fees in some markets, its CEO said on an earnings call in September.

“This year, we saw a dramatic shift from retailers saying, you know, ‘We’ll accept anything anytime, we’re extending our windows, which was kind of the Covid norm… to more direct sales where there’s more deliberate action taken to make sure that we’re profitable,'” Sender Shamiss, president and CEO of goTRG, which works with companies including Dell, Walmart, Samsung and Sam’s Club on their returns solutions, told Modern Retail. “And a big part of them not being profitable is their returns.”

About 1 in 5 products bought online are returned, NRF data shows. Especially for apparel and fast fashion, “that’s not a sustainable business model,” Shamiss added. “And I think that the consumer needs to be a little more educated or a little better educated, as to the result of that. It ends up inflating the cost of the item. And between inflation right now and the economic woes that we’re currently in, I think that consumers are looking for prices to stay pretty much the same.”

According to Shopify’s 2021 eCommerce Market Credibility Study, 68% of consumers surveyed chose “free returns” as what they find most valuable when searching for and buying products online. Nearly 70% of shoppers will actually avoid retailers who do not offer free returns in the first place, Quantum Metric said in its 2022 Holiday Habits report — and 49% of people said they would prefer to pay more upfront for the possibility of a free return.

“I think customers just really want that ease,” Quantum Metric’s Quinby said. “I think everyone has at least one memory of a really frustrating customer return that they’ve undergone. And so people are willing to pay to avoid these poor experiences.”

How smaller companies view returns

There’s no one-size-fits-all approach to returns for small e-commerce companies, but many told Modern Retail that they want to go the extra mile on customer service.

Beekman 1802 is a DTC goat milk body care and skin care brand based in New York. Like many in the beauty industry, it does not return returned products to its inventory due to hygiene concerns. But, “we try and first prevent the return as much as possible,” COO Tomei Thomas said. “We’re very honest and straightforward about the claims, as well as the use of intent, of the product.”

While the company’s online terms say it asks the customer to pay for return shipping, “99.9% of the time, we do not charge for returns,” Thomas told Modern Retail. “If the customer has a personal issue with the product — like, for example… she thought she was going to like the scent but because she bought it online, she didn’t end up liking it — we’ll say, ‘That’s okay, we’ll give you the credit back. And because we’re a brand about kindness, maybe spread the kindness and give it to a neighbor of yours or a friend of yours if you didn’t like that scent.’ So we let the customer keep the product.”

Pair Eyewear, which sells customizable glasses and sunglasses online, gives customers 30 days from time of delivery to return their items and accessories. Shoppers can print out a return label online and send back the items for free. “I think, honestly, with e-commerce, things go back and forth,” Pair Eyewear’s Hague said. “But we kind of view it as table stakes, in terms of free returns, just to make sure that folks feel good about buying their eyewear online, because it is a different experience than it is if you go to the doctor’s office.” To assist with this, Pair Eyewear offers virtual try-on services.

Pair Eyewear’s return rates are “not too bad, especially compared to the industry,” Hague said. But for those that do make returns, Hague sees those as “a pretty great source of operational data, because you get direct feedback from the customer on what’s working for them or what’s not working for them.” Pair Eyewear sums up its findings from returns on a monthly basis and then sends them to certain teams as feedback, Hague said.

DTC luxury sports bag company Caraa also takes customer feedback into account and uses it to make adjustments to new product batches, according to Hannah Hendler, director of operations and partnerships at Caraa. Caraa accepts returns on new and unused items except those listed as final sale. Its usual return window is 21 days from shipment, but for December, Caraa is doubling that window to 42 days “to accommodate gifting for others or to treat yourself,” Hendler told Modern Retail.

Caraa has a few different return policies in place. Customers who want to return items for store credit do not have to pay a fee. Those who want to make an exchange get an additional $15 credit as an incentive to buy something else. Caraa does charge a flat $12 fee for straight returns. These are deducted from the total refunded amount.

For this, Caraa takes supply chain demands into account, but “we obviously want to encourage people to find something they love with us,” Hendler said. So in March, Caraa rebranded its website and lowered its free shipping tier from $85 to $35 for deliveries to the contiguous U.S. states.

“We took it as kind of an opportunity to think, how can we make the brand a bit more accessible to first-time shoppers, reward returning customers?” Hendler said. “We wanted to make a good promise to our customers that if you see most of the things on our website, you’ll be able to get it without paying any additional shipping.”

Brands told Modern Retail that they weren’t too phased by the prospect of returns. Beekman 1802’s Thomas said the company’s return rate is “50% under the benchmark return rate,” which he attributes to “how we talk about and sell our products.”

Pair Eyewear knows that “there’s always going to be some level of returns,” Hague said, “but honestly, it’s not something we’re concerned about at this point — although we are obviously trying to do everything we can to keep those as low as possible.”