Can retailers make returns profitable?

Free returns are loved by consumers, but also abused by a minority. So should retailers call time on easy returns and what effect would it have on the industry?

Buy, try and return if you don’t like. It’s the modern way to shop online. But retailer Asos is tightening its rules.

In April, Asos said it would clamp down on customers who order and return “way, way more than even the most loyal Asos customer would order”. These malefactors will be banned. Also getting the red card are customers who “wardrobe” or wear clothes once and then return them.

Asos’s move has triggered an industry conversation over returns. Is the industry too generous with returns? Who should pay for postage, the vendor or buyer? And what should be done about the cheeky 2 per cent who abuse the rules?

By banning the minority who take advantage, better conditions can be offered for the rest of the consumer base

Consumers want retail returns as an option

A lot of research is being done to find the answer. First up, the data shows how important returns are to consumers.

A survey conducted by Klarna, a credit service, of 2,000 UK shoppers found 78 per cent would buy more in the long run from retailers with free returns. Three quarters said returns are a key part of how they select a retailer and 86 per cent say free returns will make them more loyal.

The testimony of retailers supports these numbers. For example, Andrew Davies, head of ecommerce at Weird Fish, a mid-sized clothing brand with 16 stores, says the quibbles are minor compared to the upsides. “The returns process and experience is just as important as the payment process,” he says. “As long as you are offering a positive experience and the process is efficient, then the long-term value of any customer can absorb the costs of any returned item.”

And there is a legal minimum to observe. The Consumer Rights Act imposes a statutory 30 days. Robert Lands is partner at Howard Kennedy, a London law firm, who explains: “The Consumer Rights Act 2015 relates to faulty goods and goods which are not as described, but the rules on which online shoppers rely when they’ve just changed their mind are in the Consumer Contract Regulations 2013. These are more generous than many realise. Some believe that consumers have 14 days to change their mind and return, but in fact you can take 14 days to inform the retailer of your intention to return and then a further 14 days to do so.”

That’s the minimum. Retailers can offer more. And, in line with consumer demand, the trend is to offer longer windows. Research by Kurt Salmon, part of Accenture Strategy, shows the time frame for full refunds is growing, with 57 per cent offering 15 to 31 days and an additional 19 per cent allowing up to 90 days.

The risk of a longer returns window for business

However, retailers are finding that extending the returns windows comes with dangers. Returned goods may be harder to sell again, as the seasons change. And goods may be damaged if held for longer.

Retailer Jules B offers only the basic 14-day window for these reasons. Bethany Hamer, the online fashion editor at Jules B, explains: “This shorter time frame cuts down the risk of items being returned damaged, faulty or with missing tags and allows us to get things processed more quickly and get products back online. We don’t have the stock levels that larger online retailers do, so it’s important to us that we get items back into our stock as quickly as possible.”

There’s also the question of who pays. Data from parcelLab, looking at the UK’s largest 100 retailers, says only a fifth provide a returns label with deliveries. The rest expect the consumer to sort out the return themselves, although 16 per cent offer an online label download service. This is not always postage paid. The average cost of postage is £8.42. And communication with customers is not great as a quarter do not notify consumers when their return has been received and a third fail to say when the reimbursement will be processed. This suggests a lot of work can be done on the experiential side of returns.

Managing consumers that abuse the returns rules

All this seems to show that returns are popular, profitable and in line with consumer expectations. The challenge is how to deal with the tiny number of consumers who abuse the returns rule. Recent research from Barclaycard suggests this is the biggest annoyance for retailers. A quarter have seen returns increase in the last two years. And one in five report redrafting their returns rules to be more stringent to counter vexatious returns, with a further 19 per cent planning to do so in the next year. The concerns cited by retailers are over-ordering and wardrobing.

In summary, the industry is learning how to master returns. Longer windows than the legal minimum are appreciated by consumers. And free returns are a boon. But serial abusers undermine the entire system.

By banning the minority who take advantage, better conditions can be offered for the rest of the consumer base.

For example, Asos has taken action against consumers who order too much or wear clothes and then return them, but it also improved the offering by extending the window for free returns to 45 days, with a voucher for anything received after 28 days.

In a nutshell, the golden age is here to stay. Apart for that naughty minority. The rest of us can bid good riddance to them.