Companies are Mitigating Returns with Return Fees

Mitigating Returns with Return Fees

The average retailer sees $166 million in returns for every $1 billion in sales. In 2022, consumers returned about 16.5 percent of the items they purchased online, up from 9.6 percent in 2019, according to the National Retail Federation. 

All these costs began building up in 2020 as a direct response to the shutdown of many brick-and-mortar options during lockdowns. Rather than trying on various clothing options, for instance, consumers ordered them all online, chose which they wanted, and then returned the remainder. Retailers had no option but to accept the costs as part of doing business at that time. This led to big piles of disorganized products in overflowing warehouses. Some big box retailers even implemented a temporary refund policy with no return necessary just to avoid bringing more products back into their bursting distribution centers. The rampant returns added up to big costs for many companies, and they’ve been searching for ways to offset those costs in the ensuing years.

The cost of processing returns isn’t covered with pocket change. There’s more shipping involved and increased labor costs in the form of evaluating the condition of returns and then restocking or exchanging them where possible. Software to orchestrate returns is often necessary, too, whether as an add-on to an existing WMS or as a feature of the baseline software package. Added up, companies stand to lose up to 50 percent of their margin when customers return items, according to a Gartner report.

As the pandemic trend of e-commerce continues, companies are starting to add fees to returned items—in fact, 81 percent of retailers reported adding such a fee in 2023, according to returns specialist Happy Returns. Others are choosing to deem items “non-refundable” or “final sale.” While this might be a smart cost-saving strategy for retailers, the peak holiday season is about to kick off. How will consumers respond to those policies and fees?

Some of the big-box retailers are in the mix of those companies charging returns fees, and odds are, they will get away with that practice unscathed. With their volume of business, even if they lose a small percentage of customers, they will weather any backlash. And most of the fees are relatively nominal. Amazon, for instance, only charges one dollar for customers to ship returns through UPS, while clothing retailer H&M charges $5.99 for returns sent via the U.S. Postal Service. The company also features a loyalty program that allows members to skip the returns fee. Still, some stats point to an average cost of $7.50 in returns fees these days, which might cut into consumers’ goodwill toward a retailer.

Once the holiday season is over, it will be interesting to look back over the numbers to see how some companies fared—or didn’t—with their returns fees. Once the dust has settled, retailers will surely review and continue to evolve their policies.