Return of the Fees: How Retailers Can Reduce High Return Rates

After years of free and easy return policies, retailers are working to reduce rampant return rates. Nearly half now charge fees to offset rising costs. Popular brands like H&M, Zara, and DSW, among others, are opting to add fees to combat environmental, freight, labor and packaging costs associated with product returns.

But are these punitive fees the best solution? While it’s true that returns pose many problems — from financial burdens on retailers to frustrated customers — the root of the issue lies in excessive returns flooding the system in the first place. Before passing return costs to shoppers through fees, retailers should focus on reducing returns at the source by more accurately matching inventory to demand.

The key to tackling high returns? Leveraging supply chain data to gain actionable insights that inform prevention strategies. Analyzing past patterns identifies high-return products. Customer insights enable matching shoppers to optimal items. Inventory analytics pave the path to prevention.

The real retail winners in 2024 will be those using predictive, proactive solutions to slash return rates — not those opting to offload costs onto consumers through return fees. While fees may provide short-term relief, they jeopardize long-term loyalty.

Savvy brands will leverage the right software and data to optimize inventory and enable better customer purchase choices. Reducing returns from the start through demand forecasting, personalization and enhanced content is the key to boosting loyalty and sales.

Costly and Unsustainable Returns Aren’t the Answer

Returns have hit crisis levels, with costs spiraling out of control. Processing a single item costs retailers roughly 66 percent of the purchase price. Multiply that percentage by billions in returns, and retailers’ cost burden and profit loss are staggering.

Charging fees seems like a simple fix for rising returns — 88 percent of retailers planned for stricter return policies by the 2023 holidays. But this reactive approach risks serious consumer blowback. Nearly 60 percent of shoppers say tighter return policies deter them from purchasing.

Retailers should examine the cause of high return rates, usually stemming from:

• unclear product details;
• limited sizing information;
• low-quality images;
• absence of customer reviews; and
• overproduction, often leading to loose return policies as a strategy to manage the surplus.

Nearly 60 percent of shoppers blame returns on misleading or poor product content. Enhanced product descriptions, detailed sizing information and lifestyle imagery help set accurate expectations and increase customer satisfaction.

Brands can invest in rich product detail pages. Personalization tools like size recommendations and promotions based on purchase history also help match shoppers with products tailored to their needs. The more retailers can curate the pre-purchase experience using data, the less likely purchases will come back.

Retailers prioritizing fees over proactive cost reductions will create ineffective solutions and strained consumer relationships. Escalating fees will also intensify competition among brands as they prioritize cost management over customer satisfaction and innovation. Ultimately, lost sales and damaged customer loyalty erase any small gains from recovered fees.

Be Proactive, Not Reactive

Forward-thinking retailers proactively address returns by leveraging data to understand their customers and tailor offerings. Enhanced product content and personalized experiences contribute to this customer-centric strategy by providing detailed information and creating engaging shopping experiences.

Inventory optimization analytics empower retailers to accurately forecast demand, maintain a well-aligned supply chain, and prevent overstock situations. This targeted approach enhances overall operational efficiency, resulting in a more cost-effective, customer-centric supply chain.

Rethinking returns strategies starting from the initial stages of demand forecasting, personalization and content improvement is critical for building customer loyalty and driving sales. Leading retailers will distinguish themselves by taking decisive action to reduce returns through data-driven insights. Those that lag behind risk losing their most valuable customers.

Yifat Baror is the co-founder, CMO, and chief growth officer at Osa Commerce, a platform that provides integration management, data order management, warehouse management, and last-mile management.