Are free returns viable for your e-commerce business? This article explores the pros and cons of offering the service, along with strategies to minimize the financial impact on your business. Whilst illustrating how DHL Express can support your logistics needs to ensure a seamless process from start to finish.
It’s the big question for online retailers – whether to offer customers free returns. It’s no secret that returns are a huge headache for e-commerce businesses: around 30% of all online orders are returned1. Yet, research from Statista found that free returns are a leading motivator for online shoppers to buy directly from brands2.
For the past several years, many leading retailers have offered free customer returns, particularly fast fashion brands who know it is a big incentive for customers who like to try on and feel a product before committing to keeping it. Fashion giant ASOS was an early pioneer of the free returns movement and invested heavily to make it easy – customers simply have to scan a QR code with their smartphones to process a return, negating the need to print out a returns label. Head down to a high street Post Office on any given day and you’re guaranteed to see a stack of ASOS-branded packages piled high, ready to be sent back to their maker.
Why are stores now charging for returns?
With returns costing retailers an average of 21% of the order value3, and searing gas prices set to increase this further, many brands are now saying enough is enough. Especially as apparel has the highest returns rate of all product categories4, the fashion sector is again leading the way.
ZARA, Boohoo and Uniqlo all began charging consumers for returns this year. The decision made headlines and caused much outrage on Twitter. Despite this, e-retailers should be bold and seriously consider charging for returns, argues Jeff Sward, founding partner at Merchandising Metrics.
“Absolutely charge for returns,” he told Retail Wire5. “Free returns sounded great when the mission was to get customers comfortable shopping online. OK, [now] they’re comfortable – really, really comfortable shopping online. Now the focus needs to go back to profitability and sustainability. Yes, a couple of customers may leave. But a couple of other customers may visit the stores more frequently, which would be a very positive outcome.”
Do stores lose money on returns?
Processing a return can cost retailers as much as 39% of the original price, according to a 2023 report from logistics technology company Optoro6. This high cost is one reason why some retailers, like Amazon and Walmart, occasionally allow customers to keep their refunded items instead of returning it. As return volumes increase, businesses are feeling the financial pinch – especially during peak shopping periods.
Free returns also come with hidden environmental costs. Every returned item adds extra carbon emissions from transportation and packaging, at a time when consumers are more eco-conscious than ever.
Customer loyalty vs profitability
However, not everyone is on board when it comes to saying goodbye to free returns. “It’s perfectly fine to charge for shipping, but an additional service fee, no matter how nominal, is a sticking point,” retail consultant Georganne Bender said7.
The decision to charge for returns requires e-commerce businesses to weigh the cost of processing returns against the potential loss in customer loyalty. It’s a fine balance – one that requires careful consideration of the long-term impact on brand perception and profitability.
Pros of free returns
When customers know they can easily return items without any hassle, they're more likely to take a chance and shop with confidence. This builds trust and encourages them to come back for more, knowing you've got their back if things don't work out perfectly.
Free returns give customers the freedom to explore different options and even treat themselves to something special. After all, it's much easier to click "add to cart" when you know you can easily return an item if needed. This is especially true for those items where fit and style are key. By removing the risk, you're encouraging larger orders and more spontaneous purchases, which can lead to a happy boost in your overall sales.
In the bustling world of e-commerce, free returns have become a bit of a customer favorite. Shoppers love the convenience and assurance they offer, and many now consider it a must-have. By offering free returns, you implicitly gain an edge over competitors who might not be as customer-focused, helping you attract new shoppers.
Free returns are more than just a convenient service; they're also a way to build a strong bond with customers. When shoppers know they can easily return items, they feel valued and appreciated. This creates a positive experience that encourages them to stick with brands and even spread the word to their friends and family.
Cons of free returns
While most customers appreciate the convenience of free returns, some individuals may exploit this policy for their own gain. This could involve ordering multiple variations of a product with the intention of keeping only one, or using an item briefly before returning it. Such behavior can end up in increased processing costs and additional logistical burdens.
Unfortunately, free returns can sometimes open the door to less-than-honest intentions. This could involve anything from returning items that were never actually purchased to cleverly swapping a genuine product for a fake. While these cases are uncommon it's still wise to be aware of the potential risks and have safeguards in place.
Processing returns can really add up and put a squeeze on your profits. This is especially true during busy times like the holidays when returns seem to multiply. It's about finding that sweet spot between keeping your customers happy and keeping your business thriving.
Not everything that comes back can be put back on the shelf and sold as brand new. Sometimes, things come back a little worse for wear – maybe they're damaged, worn, or missing a few pieces. This can lead to losses and extra work for your team, who need to figure out what to do with these less-than-perfect items.
Strategies for offering free returns
Here we explore some savvy strategies to ensure free returns work seamlessly for your business.
Shift around your pricing strategy
DHL’s Landed Cost calculator will help you understand your business’s total outgoings – from logistics to storage to customs fees (if you ship internationally). By having a full and detailed breakdown of your business’s costs, you can identify if and where savings can be made – savings which could allow you to offer those all-important free returns to your customers.
Make your sales channels work together
If you’re an omnichannel retailer, you have an opportunity to turn returns into an advantage. If you enable your online customers to return items to your bricks-and-mortar store(s), you could nab some extra impulse sales whilst they’re there. After all, if a customer’s initial purchase didn’t work out, it’s likely they’ll be looking for an alternative so keeping your returns policy flexible could just pay off!
Research parcel lockers
As e-commerce booms, parcel lockers are popping up all over the place to allow online customers to pick up their deliveries at a time convenient to them (rather than having to wait at home all day.) These can also be used as a smart solution for returns. Parcel lockers allow your carrier partner to pick up more of your customers’ return packages from a single location, reducing vehicle carbon emissions and costs.
DHL launched its first automated Packstations in 2001. Today there are thousands across the world, open 24/7 for your customers’ ease. DHL also operates ServicePoints at convenient locations – such as high-street stores – where your customers can drop off their returns. Discover how these could help your business, here.
Strategies for operating without free returns
There are still plenty of ways to ensure your customers remain satisfied, even with free returns going away.
Reduce return rates
If the item that lands on your customer’s doorstep matches their expectation, they’ll be less likely to return it.
On your product listings page, include a wide selection of high-res images and detailed specifications. If it’s a particularly niche or complex-to-use product, consider adding how-to guides and expert video tutorials, and include a “frequently asked questions” section to answer the most common queries. If you have the budget, integrating a live chat feature on your e-commerce website is a great way to help customers choose the right products.
Augmented reality is increasingly being enlisted by online retailers to improve the buying experience for customers. Earlier this year, Swedish furniture giant IKEA launched IKEA Kreativ in the US, an AI-driven interactive design experience which lets customers visualize – via their smartphones – how its furniture will look in their own homes. Elsewhere, many online fashion brands are adopting the technology to let their customers virtually “try on” their clothes based on their real-life measurements.
A study by Alter Agents7 found that two-thirds of online shoppers said they are less likely to return a product if they used AR features to help make their decision.
Offer alternatives
Store credit can be another fantastic way to keep customers happy even if you're not offering free returns. Think of it as a win-win: customers get a quick and easy refund option, and you get to keep their business. Plus, it encourages them to come back and shop again, which is always a good thing!
Whilst the free returns debate often focuses on the logistics cost, there’s another cost to consider – that to the environment. Every ill-fitting jumper, wrong-colored lamp or not-quite-right picture frame returned to its seller clocks up extra carbon emissions at a time when consumers are increasingly eco-conscious. In fact, a recent study by Cycleon found that 64% of US consumers would be willing to pay extra when returning an item if it subsidized a more sustainable carrier option8.
DHL Express has set itself the ambitious target of reducing all logistics-related emissions to zero by 2050. From investing in sustainable aviation fuel, to the use of electric bikes for final-mile deliveries, the Big Yellow Machine is embracing sustainability! Discover how we can help your business reduce the carbon emissions of its returns here.”
Provide easy exchanges
If your e-commerce business has decided not to offer free returns, this can ensure exchanges are super easy and customers are kept happy. Make the exchange process as smooth as possible – provide return labels, clear instructions, and a variety of return options. A seamless exchange experience can go a long way in building customer loyalty, without the allure of free returns.
Find the right return strategy for your business
Whether you choose to offer free returns or explore alternative strategies, the key is to find the perfect balance between customer satisfaction and business efficiency.
Here's a quick recap of what we've covered:
Free returns: They can boost sales and loyalty, but they also come with costs and potential challenges.
Managing costs: Smart pricing strategies and efficient logistics can help you keep those return expenses in check.
Omnichannel magic: If you have physical stores, use them to your advantage by allowing online returns to physical stores and encouraging extra purchases.
Parcel lockers: These handy lockers offer convenience for customers and efficiency for your business.
Alternatives to free returns: Store credit and easy exchanges can keep customers happy even if you're charging for returns.
Ultimately, the best return strategy is the one that fits your unique business. Consider your products, your target audience, and your overall business goals. And remember, DHL Express is your trusted partner in navigating the exciting world of e-commerce – whether free returns are going away or not. DHL Express’s global expertise and innovative solutions can help e-commerce businesses create a seamless and satisfying return experience for their customers.
Ready to take your e-commerce business to the next level? Start your journey with DHL Express today!
1 - Invespcro, May 2022
2 - Statista, published November 2021
3 - Pitney Bowes survey, Business Wire, April 2022
4 - Nosto, 2021
5 - Jeff Sward, Retail Wire, May 2022
6 - Georganne Bender, Retail Wire, May 2022
7 - Alter Agents survey, Canvas8, June 2022
8 - Cycleon study, Retail Wire, May 2022
