The Cost of Free Returns Is Hitting a Breaking Point

Posted on December 25, 2018

If you’re anything like me, Christmas Day comes as a relief. It’s finally time to give out those gifts that have been hidden around the house all month after you purchased them during a Cyber Monday shopping spree. 

It wasn’t easy to get here, either. You ordered that shirt for your mom but discovered you got the wrong color when it arrived. A prompt return and a replacement gift were put in motion just a couple weeks before the holiday. While you still had to deal with the hassle of dropping off that re-packaged shirt with a delivery service, at least maybe your return was free of charge. If it’s not, you know which brand you won’t be ordering from again. 

You see, free returns now appear to be viewed as an expectation, not a luxury, by e-commerce consumers. A survey conducted by UPS revealed 79 percent of consumers believe free returns are an important factor in selecting a retailer. And 75 percent have returned an item purchased online at least once. That’s why there’s been a clear increase in online retailers offering the possibility of free returns.

There’s even a National Returns Day (Dec. 19), which produced 1.5 million returns in 2018 to set a record for the sixth straight year. Each day in December leading up to Christmas was projected to exceed 1 million returns. There’s another big spike expected to hit in early January.

That’s a lot of free shipping, and e-commerce business owners may not feel as if they have much of a choice but to offer free returns to customers. Right now, it feels as if you’re potentially missing out on a great opportunity for growth if you’re not biting the bullet and keeping your customers happy with the free option.

But let’s forget about that for now and focus on the issue of sustainability here. Is it even possible for free returns to continue at this rate?

A recent prediction of 2019 trends from Absolunet suggests not. It’s analysis refers to free returns as “retail’s $400 billion a year elephant in the room.” That $400 billion figure was the cost of returns in 2017, up 53 percent from two years prior. E-commerce is fueling the increase with return rates for online retail estimated to be as much as four times higher than for brick-and-mortar retail. That’s putting a significant burden on e-commerce stores as 44 percent of retailers say returns “strongly impact” margins.

As a result, retailers are fighting back. Amazon announced last spring it would place a lifetime-ban on consumers who return purchases too frequently. A recent study from Brightpearl revealed others will follow that lead with two-thirds of U.S. retailers stating an intention to also ban “serial returners”.

The measures being taken to punish regular returnees is likely just the initial step retailers will take to reduce the negative financial impact of free returns. The path we are on now simply isn’t sustainable for most businesses any longer.