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The unsustainable promise of free returns haunts the future of ecommerce

Glynn Davis is one of the UK’s most knowledgeable and experienced retail journalists, founder of Retail Insider, and Ecommerce Age’s monthly columnist.

For those people old enough – who can remember the early days of online shopping when prices were invariably cheaper than in physical stores? The new online-only players wanted to compete aggressively while the established retailers typically used dual-pricing strategies with their online prices cheaper than those in their shops on the high street.

Not only was this strategy used to tempt shoppers into trying buying online but there was also the belief from consumers that without the cost of running bricks and mortar outlets – with their high rental costs and employee wages – the online channel should be significantly cheaper to run and so prices should therefore be lower.

This was soon found to be a flawed strategy because servicing online orders had its costs – many of them in fact. We all know today that the logistics infrastructure for online shopping is incredibly complex especially as the fundamentals of delivering to individual people is way more complicated and expensive than delivering batches of product to stores from central distribution warehouses.

It’s fair to say that since those early days, retailers have been working hard to build fulfilment capabilities for their online businesses. It has arguably been even more complex when dealing with multi-channel businesses. What has made matters worse is that along with dual pricing retailers also provided from day one the attractive inducement of free deliveries and free returns to online shoppers.

While there has long been pricing parity across channels the free delivery/return dynamic has remained largely in place for most retailers. Until now that is, because the situation has finally become untenable for a growing number of ecommerce players. The situation has been made worse by the increase in shipping costs as a result of Covid-19 and the war in Ukraine.

In recent weeks we have had Missguided blame its demise partly on the costs of its logistics infrastructure, which is not as efficient as rival Boohoo. But don’t think Boohoo has escaped from the logistics trap because its recent results were hit by increased costs, with a major contributor the rising levels of returns it is suffering. In the UK around 33% of purchases from its website are now being sent back compared with less than 25% in 2021. Warnings of increased returns also hit the results of In The Style.

This increasingly unsustainable situation has led Zara to start charging for returned products. From the beginning of May it began to hit its customers with a bill of £1.95 for the return of any unwanted products. Such a move follows Next and Uniqlo who have called time on the free-for-all with returns, although they have not made the dramatic move to charge for the initial deliveries. That is a step most retailers find simply too unpalatable but there is no doubt that we will see a growing number of retailers start charging for returns.

What is also helping some retailers with their fulfilment nightmare is the good old bricks and mortar stores. Whereas they were seen very much as a cost base that added increasingly little value to retailers as their online orders escalated, this view is being reassessed.

Companies now recognise the economic opportunity of switching customers away from home delivery and instead pushing them into choosing click & collect. There is also the US phenomenon of curb-side pick-up, which is being used by a number of fast food brands in the UK and was utilised by the major supermarkets during Covid-19. In addition, a growing number of retailers are also developing fulfilment-from-stores capabilities that significantly shorten the movement of goods for online orders by cutting out central distribution warehouses.

Although the pandemic highs of ecommerce penetration have retreated slightly there is still impressive forecasted growth for the online channel, with Metapack research suggesting almost £20 billion of extra sales will be attributable to online home deliveries by 2025. Whatever the ultimate reality there is an imperative for all ecommerce players to initiate strategies for their logistics operations that does not leave them exposed to perennially giving the consumer a deal that is simply too good to be true.