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The Shift in Online Shopping: The Vanishing of Free Returns

Have you tried to return some of your online purchases recently, only to learn that it will no longer be free?

The return policies of many online retailers have been changing, affecting the landscape of online shopping. Whether retailers add an extra shipping fee, offer you store credit instead of a refund, or require the item to be returned within a certain number of days, it seems like many platforms are shifting some of the costs to the consumers.

Why is this happening?

Free returns were initially offered across online stores to encourage the switch from shopping in person to shopping through the web, especially in earlier days when consumers were distrustful of purchasing items online. There was a large effort from online retailers to make shopping on their platforms as convenient as possible, even as they lost up to USD$10 - $20 for every return they received.

The policy of free returns remained even as online shopping became increasingly popular, as many retailers did not want to lose that competitive edge. However, consumer habits changed during the pandemic, with people buying more online and trying out different brands, causing return rates to increase drastically. Now, many large retailers, including Amazon, Zara, and H&M, are pushing back and changing their policies.

That being said, big retailers who may decide to discontinue their free return policy may face 3 major disadvantages for their businesses, like:

1. Decreased in Customer Satisfaction and Loyalty: Free returns contribute to a positive customer experience by providing convenience and flexibility. When customers feel confident that they can return an item hassle-free if it doesn't meet their expectations, they are more likely to make a purchase. On the contrary, if there's no free returns they would most likely not make the purchase.

2. Competitive Disadvantage: In the highly competitive e-commerce landscape, free returns have become the "norm'' offering among many online retailers. By discontinuing free returns, businesses risk losing their competitive edge and may drive customers to competitors who still provide this service. Maintaining free returns can help attract and retain customers in a market where options are plentiful.

3. Consumer Behaviour and Purchase Distrust: Removing free returns may deter customers from making purchases. Without the safety net of being able to return items without additional costs, shoppers may become more cautious and hesitant about trying new products or brands. This can lead to reduced sales volume and missed opportunities for retailers to introduce customers to their products and build brand loyalty.

There is no doubt that offering "free returns'' comes at a financial cost, with the extra shipping and restocking fees. For large retailers, many of their returns are simply thrown away instead of resold, as that is most cost-effective for their business. While it's true that online retailers face costs associated with free returns, the overall cost structure of running an online store tends to be more favourable compared to operating physical brick-and-mortar stores. Online businesses can save on expenses such as rent, utilities, and staffing that are typically higher for physical stores. This cost advantage can offset the expenses incurred from processing returns, making free returns a worthwhile investment.

Thus, it's important for big retailers to carefully analyze their specific customer base, industry dynamics, and financial considerations when making decisions about free returns. While there are costs associated with providing this service, the potential benefits in terms of customer satisfaction, loyalty, and long-term revenue generation make it a valuable strategy for many businesses, especially big retailers in the competitive online market.

In the contrary, offering free returns may present challenges for small to medium businesses, such as:

Financial Constraints: Lack of funds for free returns, impacting profitability.

Limited Scale: Big retailers handle returns better due to infrastructure and partnerships.

Product Margins: Very tight margins to hinder free returns.

Inventory Management: Might struggle with restocking and storage costs.

Customer Base: Return rates vary, making free returns less beneficial for some.

Resource Allocation: Small businesses prioritize growth areas over free returns.

While offering free returns may present challenges for small to medium businesses, it's important to note that there are alternative approaches they can consider. For example, they could offer partial refunds, store credits, or exchanges instead of full cash refunds. Implementing clear return policies, providing accurate product information, and offering excellent customer service can also help mitigate the need for free returns and maintain customer satisfaction within the limitations of their resources.

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