Returns: costs set to rise dramatically

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Returns are a core part of the online retail proposition giving customers to the confidence to buy goods unseen. The trouble is that processing returns is expensive, and a new study suggests that increasing levels of returns are hitting margins.

Some online retailers have introduced try-before-you-buy schemes and the study by OnePoll for ERP supplier Brightpearl suggests that there are hidden dangers to this.

ASOS introduced its try-before-you-buy scheme in time for last year’s peak, and chief executive Nick Beighton highlighted the scheme as enhancing the customer proposition when the retailer reported a 23 per cent rise in UK sales for the four months to 31st December.

Malory Davies, Editor.

The study found that about a quarter on online retailers are expected to adopt the try-before-you-buy model over the coming year, and the cost of returns is set to triple as a result.

It looks at the impact of such schemes on consumer behaviour, finding that three quarters would definitely or maybe buy more items if offered a try-before-you-buy option, with shoppers ordering on average three extra items each month, only to return them without ever paying a penny.

Some 87 per cent would return up to seven purchases – with research showing that 85 per cent of consumers expect retailers to provide returns for free.

Over 40 per cent of retailers reckon they have have seen a marked increase in ‘intentional returns’ over the past twelve months, when customers deliberately over-order multiple items knowing returns are free or cheap.

More than half say their margins are being hit by the process of handling and packaging returns, and 72 per cent believe margins will be squeezed further as the try-before-you-buy trend intensifies.

There is no doubt that even the biggest retailers find returns a problem. For example, last month Which?, the consumer watchdog, found that 45 out of 46 popular online retail web sites contained misleading information about the returns rights on consumers.

The predicted growth in returns suggest that they are going to become a much bigger part of the online retail supply chain than most players ever imagined.

Organisations that have the systems and technology in place to meet this challenge can gain a competitive advantage: those that don’t could end up wondering where their profits went.

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