Online shopping is now easier than ever before, enabling consumers to purchase everything from socks to a dining room table from a computer at their home to a mobile phone in an airport terminal. While this is good news for many ecommerce retailers, it has also become more and more expensive to deliver those goods to customers.
With rising fuel prices, supply chain and logistics challenges, and higher labor and production costs, retailers are struggling with how to efficiently deliver a high volume of goods to consumers who have quickly become accustomed to seamless purchasing experiences.
The ease of online shopping also gives consumers the ability to comparison shop more quickly, showing them more options in less time. This means that it’s not enough for products to be delivered quickly – customers also want to know that if those items aren’t quite what they expected, they can be returned just as quickly and easily. This presents a dual shipping dilemma for businesses: how can they keep shipping costs on the business low, while also offering customer-friendly return policies?
As it turns out, this is quite an expensive problem to solve. According to Insider, total retail returns were projected to grow 2.2% to $627.34 billion in 2023 — accounting for 8.5% of total retail sales. That’s a huge volume of returns for retailers big and small, and these predictions show that that figure will likely remain steady through 2026.
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The complications of this dilemma are borne out in consumer data. Happy Returns, a UPS company, has found that 50% of shoppers have abandoned a purchase because the merchant did not offer a convenient way to return unwanted items.
This means that when ecommerce retailers can’t provide the peace of mind that clear return shipping policies can offer, customers will take their money and run. Solving this issue is more timely than ever – for businesses already rocked by a floundering economy, many ecommerce merchants don’t have any margin to spare.
Not Just a Small Business Problem
For the world’s largest retailers, like Walmart and Amazon, the question of how to handle return shipping isn’t nearly so dire. The cost of returning and restocking some low-cost items can so far outweigh their value that these companies often allow the customer to keep the item and receive a refund anyway.
While this may only be a drop in the bucket for a retailer tallying hundreds of billions of dollars in annual revenue, many smaller retailers are feeling the pinch of higher shipping and handling prices much more significantly, while also needing to compete with these attractive return policies directly.
And it’s not just smaller retailers – companies like H&M and Zara have recently reversed course on their longstanding return policies, opting now to offload return shipping costs onto the consumer. In total, retail technology company Narvar estimates that about 40% of retailers are charging return fees this year, and that figure is up from 31% in 2022.
As the economy continues its rocky recovery from the pandemic, companies are going to continue to feel pressure to increase profits. Reducing the costs of online fulfillment and returns will be a key focus in doing so.
Customers want Clear Expectations
As they purchase more and more goods online, what consumers ultimately want is quite simple: the peace of mind that if their purchases aren’t aligned with their expectations, they won’t be surprised with hidden return shipping fees later. In fact, market research has found that more than half (54%) of customers have felt blindsided by a retailer changing their online purchase return policy, such as only allowing exchanges or store credit, charging a return fee, reducing the return period, or only allowing in-store returns.
Gathering this information prior to purchase can be tricky, since one retailer’s policy often differs from the next — and it can be difficult to identify exactly what the return shipping policy is without sifting through the depths of each merchant’s website.
This is especially true as ecommerce retailers continue to feel the squeeze of economic headwinds and change their policies accordingly. In addition to H&M and Zara, even retailers like L.L. Bean – which once guaranteed lifetime returns – are now charging $6 for mail-in returns. For repeat customers, retailers may even update their return policy without clearly denoting the change at checkout, leaving customers with an unfortunate surprise after their goods have arrived.
This issue isn’t just plaguing U.S.-based retailers either. However, the difference is that other countries have established interesting ways of dealing with it. In China, for example, customers are entitled to a full refund on ecommerce purchases under a regulation that protects buyers’ rights, even if the packages have been unsealed. This way, Chinese consumers know that if their purchases aren’t satisfactory, they are entitled to a full refund if their items are returned within seven days of receiving them.
For ecommerce companies, the advantages to investing in clear return shipping policies aren’t just limited to one-off transactions as they look to grow topline revenue. Doing so also helps these companies build consumer trust and loyalty with their brand, creating stronger customer satisfaction and brand evangelism at a time when customers have more choices at their fingertips. If a customer knows that they can purchase a similar product at a similar price point at two different retailers, it stands to reason that they would be more likely to purchase from a retailer that they already know and trust.
When asked about return shipping protection, the customer’s voice is clear. As many as 80% of shoppers say that if an online retailer they regularly purchase from made their return policy more complex, they would buy from a different retailer with a more favorable return policy instead.
With more options than ever for consumers’ every need and return shipping fees eating into retailers’ bottom lines, ecommerce merchants will need to find a solution that strikes a balance between business and customer needs.
Fortunately, new and innovative approaches for addressing the dual shipping dilemma are emerging to both provide consumers the peace of mind of no hidden return shipping fees while also protecting the bottom line of ecommerce retailers. Those in the ecommerce business, particularly small online retailers, would be well served to check them out.
Wayne Slavin is co-founder and CEO of Sure, the insurance technology leader that unlocks the potential of digital insurance.
