Why and How Retailers Are Dropping Very Generous Return Policies

Why and How Retailers Are Dropping Very Generous Return Policies

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COVID ushered in a period of free and limitless returns as retailers scrambled to keep shoppers at a time when stores were closed. But the worst days of COVID are in the rearview mirror, and the 2023 macroeconomic environment provides no succor for overly generous return policies.

Hannah Bravo, COO at the returns platform Loop, connected with Street Fight to explain why the generous returns era is ending and how retailers should update their practices.

How popular are limitless return policies? How did we get to this very generous status quo?

Shopper expectations for free shipping and returns are, in large part, due to the pandemic. When e-commerce experienced massive growth in 2020 and 2021, retailers were forced to adopt aggressive e-commerce strategies in a very short amount of time; the promise of free shipping and free returns was used as a means to entice people to continue shopping with them. 

The pandemic also caused an influx of competition within the space and reinforced the idea that topline growth was a primary concern for retailers. They felt the need to differentiate themselves and win the hearts and minds of customers. 

But, in the current climate, this is changing, and retailers simply cannot maintain this as the status quo. In fact, we observed a 54% increase in returns YoY with a simultaneous 76% increase in returns being assessed fees; the average return fee also increased. Major players such as Zara and H&M made headlines late last year when they axed the practice, and more retailers continue to follow suit. 

Why is the period of extremely generous return policies coming to an end — if it is?

With today’s economic challenges, efficiency and profitability matter more than ever to retailers — and returns can be a drain on both. However, how a merchant optimizes the post-purchase experience can make all the difference. 

We tell our Shopify merchants that charging for returns with a scalpel rather than a sledgehammer is much more profitable. In other words, if you charge for refunds but offer free returns for exchanges, you’re now driving the right shopper behavior that not only generates more revenue for your business but also creates happier shoppers. 

Retailers can also implement a tiered system to ensure their most loyal customers aren’t assessed hefty fees. Every customer is different, and your return policy as a retailer must reflect this. For example, a first-time customer can be assessed a standard fee, but if a customer has shopped with your brand for many years and hasn’t ever abused a free system in the past, they shouldn’t be punished when the policy changes. 

What do consumers really want out of their returns experience?

Today, shoppers are now seeking more personalized, premium, and convenient returns  — and they’re willing to pay for them, too. In fact, our recent survey data shows that 70% of shoppers will pay for more convenient, premium experiences, like at-home pickup or package-less return drop-offs. 

This allows the brand to recover more of the loss associated with a return while simultaneously improving the customer experience.

In general, consumers are getting more savvy about returns, so ensuring return policies are clear and fair will go a long way. We found that 96% of shoppers regularly review return policies before making a purchase, and many would rather eat the cost of unwanted products than engage with a confusing or time-intensive returns process. Shoppers, too, are more closely monitoring the environmental impact of their purchases and often look to return policies to assess a brand’s sustainability. Our data found that 73% of shoppers regularly review return policies to gauge the sustainability level of a retailer’s return practices, and 88% of shoppers agree that eco-friendly return options make them more likely to shop again.

What’s a mistake many retailers are making with return policies?

The biggest mistake that retailers can make in 2023 is employing a one size fits all approach. It’s time to drop this mindset in reverse logistics. In the modern world, shoppers have diverse needs, and they expect the returns process to be equally diverse. Customers’ relationships with brands are largely influenced by their returns policies, but what resonates with one customer isn’t guaranteed to resonate with another. Applying blanket return fees fails to optimize the post-purchase experience, and can impact your business’s P&L. Retailers have an opportunity to invest in their loyal customers while creating simple barriers (fees) for riskier customers.

With this in mind, retailers must develop reverse logistics strategies that meet all shoppers where they are – whether it’s with more traditional and cost-effective options, or avenues that prioritize sustainability and brand values – in order to create a win-win for their bottom line and their customers.

Joe Zappa is the Managing Editor of Street Fight. He has spearheaded the newsroom's editorial operations since 2018. Joe is an ad/martech veteran who has covered the space since 2015. You can contact him at [email protected]