Holiday Sales Sprint   //   December 19, 2023

The case for and against return fees

After the holiday season comes another annual retail event: returns season. 

Last year, roughly 16% of e-commerce orders were returned between November and January, up from 12% the year prior, according to Insider Intelligence. The influx can be a headache for brands as navigating reverse logistics remains an expensive and cumbersome process – so much so that some brands like Target or Chewy will tell individuals to keep or donate the returned item.

But one potential strategy that’s up for debate is whether charging customers for returns is beneficial. It’s a practice that’s on the rise, with about 40% of retailers charging return fees compared to 31% last year, according to Navar research. Some customers have bemoaned this as the end of free returns, after fast-fashion stalwarts H&M and Zara began charging for returns, as well as apparel brands like American Eagle and off-price retailer T.J. Maxx. Fees range from $3.95 or up to $11.99 being deducted from the customer’s refund. Yet many direct-to-consumer brands,  and the online shopping behemoth Amazon, offer free returns as a benefit to shoppers. 

Which is the best path forward? Like many e-commerce strategies, it depends on the product and the customer. Here’s a breakdown of the reasons why return fees work — or why not.

For: A return fee helps cover costs

One of the biggest reasons a retailer may charge return fees is to recoup their costs of reverse logistics. Having to receive, unpack and re-stock or redirect the return item can be a pricey process, said Amena Ali, CEO at returns technology provider Optoro. The firm’s research shows that the average return costs a retailer $30, and the cost of processing returns has gone up about three times over the course of the e-commerce shopping boom of the Covid-19 pandemic. 

“From a cost perspective, it’s just expensive which is why we’re talking about, ‘Should I charge for?’” Ali said.

For a brand with a physical presence, charging for online returns could help lure the customer into the store, where it may be more direct path to getting the product back on the shelves. For online purchases that are returned, off-price retailer T.J. Maxx deducts $11.99 from the customer’s refund or store credit. But taking the ordered item into a store is free. The brand advises customers that, “To avoid return shipping and handling costs, you can bring your online purchase to a T.J.Maxx store near you.”

Against: Free returns are a deciding factor for many shoppers

While a return fee can help retailers offset the cost of a return, it can be a major deterrent for new shoppers, Ali said. Oporto’s research shows that 64% of shoppers purchased at a brand because they had a better return policy than a competitor. And about 44% of shoppers care most about free shipping when making the return. 

Ali said that any returns policy must be shopper-friendly, and line up with what their convenience needs are. That means that a fee might come with a more service-oriented return process, like at-home pickup – where free shipping requires the customer to get the package in the mail themselves. 

“You have to view it through a lens like that, so you’re not simply charging everybody or charging nobody,” she said. 

For: A return fee helps insulate against over-ordering 

One trend that’s emerged in e-commerce is “bracketing,” or people who order multiple sizes to try at home and return the rest. A return fee can help deter this behavior. 

But it has to be a cautious decision. Alex Soncini, co-founder at e-commerce platform V-tex, said that those who charge for returns should do so as part of an overall strategy that considers the loyalty of a customer. Someone who has ordered before may qualify for a free return, while a first-time customer may not. 

“If it’s a super loyal customer and they start a return, you as a retailer should refund immediately,” he said. “If it’s not, you’re only going to refund when you get the product in the warehouse and you see that the product matches what the customer described.” 

In some cases, offering free returns can be a benefit for loyalty programs. A spokesperson for H&M told Modern Retail via email that its $5.99 return fee has “always” been the case for online returns in the United States, though members of its loyalty programs get free returns. 

“H&M’s online returns policy varies from market to market. We strive to help our customers find the right size and fit from the outset, in order to reduce the returns rate,” the spokesperson said. 

Against: Free returns are a customer service benefit

Given the popularity that free shipping has with consumers, some brands offer it as a way to tell the customer that they’re sure to love the product. 

Christina Carbonell, co-founder and co-CEO of DTC apparel brand Primary, said the brand has always offered free shipping. With return rates under 5%, it’s a rare instance and the economics wind up working out, she said.

“We’re proud to offer free returns,” she said. “It’s a little bit of a stamp on our quality too. We know you’re going to love this, but if you don’t, of course return it and we’re more than happy to pay for it.”

In the case of Amazon, most items are eligible for free returns, with more than one option available. Some can be returned without printing a label or boxing up if the customer can bring the item to a nearby drop-off location. Yet there are conditions, like the weight of an item, that may come with a fee.

Ali from Optoro said that brands that are thinking about a return fee should consider their supply chain costs and ensure that any fee doesn’t impact a customer’s lifetime value or purchases.

“You have to analyze the lifetime value of one kind of customer versus another, and say a one size fits all approach is probably not going to work,” she said.