Finance & Economics

Inditex will charge returns: what does it mean to global retail?

Now returning a Zara dress which doesn’t fit might cost you a few bucks. What’s behind the decision of the clothing giant and what does it mean for global retail?

inditex fees

Inditex will charge returns: what does it mean to global retail? Source: depositophotos.com

One of the world’s largest fashion retailers, uniting seven clothing brands (Zara, Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Zara Home), has recently announced it would be charging a fixed fee of €1.95 on online returns in 30 markets. Thus, customers in the EU or UK who get products for return collected from their homes or leave them at a collection point will pay the price.

The official logic behind the additional charge is sustainability. Collecting items from people’s homes or drop points requires active work of the delivery service. Couriers obviously use cars which are a major contributor to air pollution and related environmental issues. Therefore, Inditex aims to motivate customers to return clothes at brick-and-mortar stores. In that case, they won’t be charged any fees. On the other hand, the option to return clothing from the comfort of one’s own home is more client-oriented.

Critics suggest that the retailer’s decision may have some additional motives. For example, an extra charge will make customers more reluctant to file for a return remotely or return the product at all. Thus, the company may save some money on courier services and exchange. The return process has obvious negative impacts on retailers’ expenses, including the cost of warehousing, shipping and restocking, the cost of disposal of damaged or faulty goods, and the price of repackaging, refurbishing and remarketing.

Besides, the customers who come to a brick-and-mortar store might spot a new item to buy while returning the faulty product. This may help the retailer increase its profits. Statistics show that 66% of people that return an item in a physical store buy another item, whereas only 44% of people that return an item online purchase another item at the same webstore.

However, many consumers may decide not to make a purchase at all if free shipping for returns is not guaranteed. According to fresh statistics, 79% of people want to return an item without paying shipping costs. In addition, 80% of customers are loyal to brands with free and easy return policies. Indeed, free returns are the second most important motivation to buy online, behind only free shipping. Predictably, the move of the fashion giant will significantly reduce the volumes of its online sales. Meanwhile, in FY 2021, Inditex revenues from online sales reached €7.5 billion, accounting for 25.5% of total sales.

Does it mean the retailer is ready to lose a number of online orders in order to reach its sustainability objectives? Not necessarily. If customers get clear explanations about the reason behind the extra charge, they may be more eager to pay it. For example, a recent survey from Cycleon found that almost two-thirds (64%) of U.S. consumers are willing to pay extra when returning a parcel to subsidize greener carrier options. The ethical stance of a brand is important to its loyal customers. Inditex is known as highly committed to environmental issues, with its eco-efficient stores and sustainable materials. Hence, the recent decision might be appealing to its large army of eco-friendly fans.

Would other retailers follow the lead? Quite possible. While free returns seem an unwritten golden standard for US e-commerce, in reality, many retailers there (around 43%) are already charging for returns. The practice may prevent a careless attitude to product choice. For instance, in the UK, one in three customers return a product once a month. It’s estimated that UK small businesses lost an average of £15,600 a month due to serial refunders in 2021. Many buyers treat the online purchases of fashion items just like trying the clothes on in the store’s fitting room. Thus, they simply order multiple items in different colours and sizes. These customers do not actually intend to buy all those stuff. They will keep the ones they like most and return everything else. It’s very convenient for a customer and could have been the only viable option in times of Covid-related closures.

However, now that brick-and-mortar shops are open, retailers may encourage more foot traffic. The methods might as well include charging for courier returns. After all, the returns rate is 8% for items bought in brick-and-mortar stores. However, the figure jumps to 25-40% when it comes to items purchased online. The bigger the retailer, the larger share of returns it faces. One of the reasons is more favourable return conditions. At the same time, a recent Pitney Bowes survey of U.S. online retailers found returns cost retailers an average of 21% of their order value. It is clear that losing one-fifth of the profit isn’t appealing to any company. Therefore, some retailers may be tempted to follow the example of Inditex in dealing with unwanted returns.

Such changes in return policies may be good for the environment and retail brands, but will they be welcomed by customers? That is the big question. Not all fashion lovers are too keen on environmental issues. Not all of them are ordering multiple unnecessary items either. Many returns are actually the retailer’s fault: items may be of unacceptable quality, they may differ from what is advertised on the website, or get damaged while transportation. Returns are an inevitable part of e-commerce, particularly for apparel retailers given the importance of a nice fit. Therefore, customer-oriented businesses must provide a simple and convenient return procedure. Visiting a brick-and-mortar store for this is not always the best choice. Definitely, many people wouldn’t like it and may consider other online shopping options.

The move of Inditex is illustrative of the global retail market picture. Firstly, it shows that online returns are a major pressing issue for brands. Secondly, it seems that expenses caused by serial returns are overweighting the costs of attracting new customers. At least, the readiness of Inditex to lose some part of online customers drawn by free convenient returns hints at that. Only time will tell whether the change of return policies will bring Inditex any financial benefits.

The companies, considering similar solutions, may try out different alternatives first. For example, discouraging frequent online returns may be achieved with:

  • VR try-on apps
  • Accurate detailed product descriptions
  • Description of the environmental impact of one remote return in the Returns and Refunds section
  • Implementing a dynamic sizing chart, using algorithms to select the perfect size for a customer using their physical data (weight, height, body type, etc)
  • Sorting customer reviews by fitting data (size vs personal parameters), so that new buyers can relate to similar cases
  • Introducing products with a video, which shows items from multiple perspectives
  • Limit the number of free online returns per person

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