October 30, 2023

Return Fees - Creating A Double Situation in E-commerce

One of the trending happenings in the e-commerce space is the addition of return fees by retailers. While these fees have deterred returns, it has also resulted in the loss of customers. Experts say return fees seem to work like magic but it comes at a cost. 

Research and survey reports from over one-third of brands imposing return fees say customers have been lost due to the charges. On the other hand, these brands have seen a reduced inflow of goods back or returned to the warehouse. 

Gartner, a research firm has its analysts, Tom Enright make his remarks. Tom Enright’s statements touch on the dynamics between returns and increased sales during the holiday peak seasons. This is when the industry is at its busiest moments. 

Tom Enright emphasized that it had become a norm for retailers to expect a percentage of returns, especially during peak seasons. According to the National Retail Federation in the US, retailers experienced over 17% of returned items after being sold in 2022. The introduction of return fees will initiate the loss of customers according to Tom Enright. The return fees make the entire purchase more expensive for customers, hence they tend to stay away. 

In the e-commerce industry returns have proven to be an efficient marketing tool to attract customers and keep them. Customers love the platform provided to return any purchased item short of their satisfaction. As a result, retailers were more than happy to take responsibility for the extra cost implications. 

The model had always looked like a win-win situation. However, comparing returns data from the pre-pandemic era to this time, it is seen that the percentage of returns has significantly increased. This shows a rise from 9.6%  to over 16.5% between 2019 and 2022. It is as though customers have taken advantage of the returns model and it is now weighing down on business profits. 

While some retailers see imposing return fees as a way of minimizing returns, it creates a double situation. It’s valid that returns have significantly reduced by virtue of the fees, however, it has taken a toll on the customer base as several customers stop shopping with the retailers. According to a survey by Blue Yonder, over 50% of customers have claimed that return fees tighten the return policy and discourage them from shopping with a particular retailer. 

What the Return Process Looks Like

The return of purchased items looks simple from the customer's perspective. However, there are several operations behind the scenes put in place to ensure that the item is fit for resale. Every e-commerce brand with a pursuit of premium customer satisfaction puts a lot into returns management. 

The return process begins from the point where a customer is dissatisfied with a purchased item and then requests a return. The retailer operates with its prevailing return policy which instructs the customer on how the returns are made. Customers ship or return the item back to the retailer as directed. 

With several return options available, retailers inform the customer when they receive the item and update them on the state of the return process. Upon receiving the returned items, retailers inspect the items to identify their quality state. The customer then receives an exchange or a refund depending on the situation. The returned item rejoins the stock if fit and ready for resale. 

In a situation when the condition of the item is beyond remedy, it is disposed of. In other cases where the condition is manageable, it is resold at a discount. 

The Ugly Aspects of Returns

On a general note, returns means extra warehouse spaces, logistics cost, and labor resources. This tends to fall on the business’s expenditure and takes a toll on the profit. It becomes worse when there is a significant volume of returns that yields higher operational costs. This is a pretty difficult situation for retailers.

When returned items are sold at a discount, it results in a loss for the retailer. A worse case is when the item cannot be resold and needs to be disposed of. This means there is no revenue generated from that volume of returned items. 

The return process may require more stages compared to the original distribution of items to customers. This results in management difficulty and extra operational costs. The uncertainty with returns makes inventory management an uphill task. When the volume of returned items is higher than the actual settled or accepted sales, a huge loss is recorded. 

Cases of customers playing a fast one on retailers also exist and this results in a loss for the retailer. 

With all these aspects in view, several retailers have adopted the use of return fees to minimize the volume and offset operational costs. However, the loss of customers remains a downside. 

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