Are Free Returns Dead? Industry Experts Weigh In

Returns are a necessary evil in retail, and even more so in eCommerce, where customers are buying without being able to first see, touch, or try a product. According to a report from the National Retail Foundation, total returns for the retail industry amounted to a whopping $743 billion in merchandise in 2023. 

The report also highlighted the total returns rate for the year, which accounted for more than 14% of sales. For brick-and-mortar stores, the number was just over 10%; eCommerce merchants saw a higher return rate, at more than 17%. Additionally, nearly 50% of in-store returns originated as an online purchase.

Returns are a headache from a cost perspective, but also a logistical one, straining support teams and negatively impacting the overall customer experience. To deal with the issue, retailers are increasingly passing a portion of those costs onto consumers. Merchants including TJ Maxx, Best Buy, Kohl’s, DSW, and even Amazon have started charging for some returns, and the trend is expected to continue.

While many clickbait headlines have declared that the free returns party is over, it’s still the industry standard. But is that changing? Should it? We asked these industry experts to weigh in on where eCommerce returns are headed:

• Ricky Au, Product Marketing Manager for AfterShip Returns
• Nikolas Callas, Director of Operations at Marc Nolan
• Edward Gaug, Director of Marketing and Partnerships at Guidance Agency
• Caitlin Teed, Partnerships Manager at Ryder E-commerce

The pros of free returns for merchants

Why do most merchants still offer free returns, even though it’s impacting their bottom line? For a few reasons:

• Consumers expect free returns. Though the onus is on shoppers to understand a merchant’s returns policy before placing an order, many shoppers don’t read the fine print. This can lead to surprises when a customer initiates a return and finds it comes with a cost. Though the blame in these cases lies with the customer who didn’t do their due diligence, it’s often shifted to the merchant, and the shopper going elsewhere for their next purchase. 
• eCommerce competition is fierce. Free returns give merchants a competitive edge, especially now that the tide is shifting toward fees. Brands that offer free returns are likely to see more conversions, repeat purchases, and brand loyalty.
• Processing fees for returns can be complicated. Though returns are costly, having one blanket policy can be easier from an accounting and customer service perspective. 

“Free returns make the process super simple. You're not adding another layer on your accounting side because you're charging for another thing. And sometimes you’re recapturing revenue from there. There's just an additional level of management that you need to deal with.” — Ricky Au

The cons of free returns for merchants

While there are some upsides  to offering free returns, there are also a whole host of downsides, including:

• Free returns aren’t free for merchants. ​​According to a study by Pitney Bowes in 2022, returns cost retailers up to 21% of order value when shipping, processing, and restocking are all considered. 
• Free returns incentivize the worst excesses in shopper behavior. Consumer habits like bracketing or wardrobing, especially during peak shopping seasons, lead to higher returns and lost revenue.
• Returns are bad for the environment. The cost of returns is bigger than the loss of an individual merchant’s revenue; it also comes with a steep environmental cost. If you look at apparel brands, which account for the largest number of returns of any vertical, 2.6 million tons of returned merchandise ended up in landfills in 2020. Brands dedicated to sustainable practices may struggle with the size of their carbon footprint when processing a large number of returns. 

"Free returns is such a tricky subject when it comes to deciding the best solution for your brand and customers. Shoppers are more likely to complete a purchase when they know returning an item will be a pain-free experience, and that will lead to a higher LTV and customer satisfaction score that, we believe, outweighs the overall loss in revenue." — Edward Gaug, Guidance Agency

What customers really want from their returns experience

“We believe the era of free returns is not dead, per se, but undergoing a transformative phase,” says Caitlin Teed from Ryder E-commerce. “The landscape is evolving; consumers have more options than ever and the ability to transparently buy from brands that align with their values—from fast and free to eco-conscious. A brand needs a strategy that aligns with the customer's expectations and economic realities.”

Returns aren’t just a headache for merchants—consumers also experience several pain points in the returns process. An AfterShip survey conducted in May 2022 showed that processing speed is the most important factor in a good online returns experience, followed by trust, cost, and convenience. 

Building a better returns process

When it comes to retailer trust, transparency is key. That means making sure your returns policy is clear and easy to find, and that customers get updates about the status of their returns.

At the end of the day (or the sale), it’s not just about free returns vs. fees—it’s about building a good customer experience. The more you can streamline your customers’ returns experience by offering self-serve options, flexibility, and minimizing the need to interact with customer support, the happier they’ll be. 

“Having your return policy accessible on a tracking page allows customers to brush up on what's applicable and what's not applicable,” says Au. “And then the next part is to make it self-service. Make it as easy as possible to process and automate to speed up that process. And then the last thing is to over-communicate. You’ll be sending a lot of emails to your customers, but at least they’ll know what's going on. And that's less work that your customer service teams will need to do.”

How Lume improved their returns experience

Lume Deodorant uses AfterShip Returns to drive stronger brand loyalty by delivering a hassle-free returns experience. By streamlining their process, they were able to shorten the time it takes to refund customers by seven days. This quick turnaround allows customers to reorder products or try new ones without delay, and the brand has seen more than a 20% lift in NPS scores.

How to minimize returns without charging a fee

While charging for returns is an effective way to offset their cost, the best way to reduce the impact on your revenue is to ensure fewer returns are initiated. There are several actions merchants can take to reduce the number of returns, along with the high cost, strained resources, and environmental impact.

• Make free returns a perk for your VIPs: Give free returns only to your most loyal customers: members of your loyalty program, frequent shoppers, and engaged customers. 
• Replace refunds with store credit: Refunds should always be processed for lost or damaged items, but for everyday returns, store credit is a more cost-effective option for merchants, and ensures that revenue is retained.
• Analyze your data: Look at the items most frequently returned. Are there size or quality issues? Use your data to improve your products, or educate customers on finding the right item the first time.
• Offer exchanges: Exchanges help merchants get customers the right product, retain revenue, and build lifetime value. Offer exchanges for variants on the same item, for any store item, for your best-selling products, or personalized product recommendations. Provide incentives for exchanges,  like discounts, free shipping, or extra store credit. If you sell offline, offer in-store returns or exchanges for free. 

For shoe brand Marc Nolan, processing returns were a costly, resource-intensive process. AfterShip Returns gave them the flexibility to offer more exchanges in lieu of returns. Before the implementation, 75% of their returns turned into refunds, with only 25% turning into an exchange. Now, 49% are exchanged for other items.

“This exchange feature took every problem away,” says Nikolas Callas from Marc Nolan. “It’s also saved a lot of revenue—$125k in the last 90 days.”

Fewer returns means less environmental impact

Another way to reduce returns is to offer Green Returns, or returnless refunds, on items you can’t resell, so you aren’t wasting precious resources on products that will just go into a landfill.

“In our recent eCommerce consumer study, we discovered that 65% of consumers said returnless refunds, a policy that allows full refunds without requiring the customer to return the unwanted items, drives them to shop with certain brands,” says Teed. “40% also say this tells them the brand cares about the environment.”

Think of returns as an opportunity, not a hardship

To charge or not to charge for returns is a decision that’s based on many factors unique to a merchant’s business, but there are ways to mitigate the losses no matter which way you go.

“It's about finding a fair balance that aligns with customer expectations while ensuring the financial health and long-term viability of the business,” says Teed. “And we know, that isn’t always set in stone, and as a brands’ business evolves over time, so do the demands of customers, and it’s about finding the balance of maintaining those loyal customers and providing a memorable experience for future brand advocates.”

Offering flexibility, self-serve options, viable alternatives to returns, and automation to streamline processes and tasks will lead to a better customer returns and exchange experience—along with optimized return costs, more revenue, and better retention. Find out how AfterShip Returns can help your business take the headache out of returns.