Counting the cost of fashion's returns problem - Upsmag - Magazine News

Counting the cost of fashion’s returns problem

Inditex-owned retailer Zara hit the headlines this month after it announced that it would start charging UK customers for online returns, as part of a broader sustainability commitment to drive more shoppers to return via its stores.

Zara customers must now pay £1.95 to return clothing bought online, which will be deducted from their refund. However, items bought online can still be returned for free in Zara stores. Zara has already introduced the charge into some of its other European markets, including the Netherlands in February.

“Customers can return online purchases at any Zara store in the UK free of charge, which is what most customers choose to do,” a spokesman for Zara tells Drapers. “The £1.95 fee only applies to the return of products at third-party drop-off points.”

Despite causing a furore among some shoppers on social media, Zara follows high street stalwarts Next, Uniqlo and Mango in charging for online returns. Next courier pick-ups from home are cost £2 per collection – £2.50 in Northern Ireland – but returns to stores free of charge. Mango customers pay to their return items via registered mail at the Post Office.

Matt Perry, CEO and co-founder of retail consultancy The Future Collective, which works with Vans and Adidas, hopes Zara’s decision will be a catalyst for industry change: “For far too long retailers have hoped the consumer would realize the unsustainable nature of the returns cycle, not only from an environmental perspective but also cost.”

One retail expert agrees: “This charge makes perfect sense for a number of reasons, including the cost of processing an online delivery and the environmental aspect [with the reduction of greenhouse gas emissions from transportation and fewer returned, unsaleable items being sent to landfill].

“But it also encourages customers to return to stores for free, which is good for footfall, better margins [versus pureplay competitors] and additional impulse purchases. Zara is a big fashion store globally, and I can see this following across Inditex Group’s other brands [Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Zara Home]but also the likes of H&M Group and others.”

logistic nightmare

Returns have always been a huge challenge for fashion retailers and brands, not only the management of transport and logistics, but also cleaning and re-packaging the product, but this has been exacerbated by the sharp rise in online shopping during the pandemic, and the cost of living crisis. In March 2022, online accounted for 26.1% of total retail sales, the Office for National Statistics (ONS) reported. This is compared with 18.9% in March 2019.

The value of the UK clothing and footwear returns market is set to grow by 5.8% to £4.4bn in 2026, up from £4.2bn in 2021 and £3.2bn in 2019, analyst GlobalData predicts. The market value is the monetary value (in terms of consumer expenditure) of the items that are returned to retailers.

“Returns rates initially dipped during Covid-19 as purchases were heavily dominated by loungewear, for which fit is less important, but as product mixes have returned to pre-pandemic trends, so too have returns rates,” explains GlobalData senior retail analyst Emily Salter .

Our latest data reveals that UK online fashion return volumes are currently 55% higher than they were at this point last year

Laura Garrett, marketing manager at returns platform Rebound

She says the significance of the returns’ dilemma was evidenced by Boohoo Group’s profit warning in December 2021, when it said elevated returns rates were an important issue weighing on its margins.

Salter adds: “More recently, these factors have been compounded by higher fuel costs as a result of the Russian invasion of Ukraine – no doubt a factor in the Post Office increasing its prices [with first-class stamps, for example, rising by 10p to 95p] from April.”fast fashion online returns app

Laura Garrett, marketing manager at returns platform Rebound, which manages online returns for Asos, Gymshark and Missguided, says the most concerning aspect for brands is that the post-pandemic returns surge shows no sign of slowing: “Our latest data reveals that UK online fashion return volumes are currently 55% higher than they were at this point last year. The data indicates that this isn’t a temporary phase and we’re firmly in a new era of sky-high returns volumes, so we do need to ask whether measures that convince consumers to pause and consider their own returns impact are necessarily a bad thing.”

As a strategy, to encourage more customers to return via stores, it can work well. Next says 75%-80% of returns are made at its physical stores. In its latest results, footwear retailer Shoe Zone said it has a returns rate of 10.9% and the vast majority are to stores.

However, Next’s retail store portfolio in the UK and Eire totals more than 500, and Shoe Zone’s stands at around 388. This compares with a UK store count of just under 60 stores for Zara, which are concentrated big cities, leading some to question whether there is enough accessibility for some shoppers.

Matt Rees, planning director at ecommerce agency Fiora, which works with brands such as outdoor clothing brand Berghaus, feels there is another route Zara could have used.

He explains: “What seems odd about this approach is that if the decision has been made based on data, like any good ecommerce model, it should be relatively easy to identify serial returners and treat them through a separate CRM [customer relationship management] program – perhaps introduce a reasonable threshold on free returns, instead of a blanket approach on all customers who can’t make it to a store, which is probably why they bought online in the first place. That way they’ll avoid penalising everyone, avoid discouraging new customers and avoid the negative PR.”

Kenny Baillie, CEO of online fashion marketplace Atterley, which offers free returns for orders of more than £100, tells Drapers: “The subject of online returns is an interesting one. Nobody really wants to have to deal with returns, especially the customer. Customers who know they are going to buy multiple options or styles to try on may end up buying from a competitor that offers a “better” – easier or cheaper – returns service. However, with costs surrounding delivery and reprocessing of returns continuing to rise, retailers will have to judge what they can do to cover that increase.”

One online lingerie CEO says: “The unit economics of returns make low-ticket items problematic from a profit perspective. Low-ticket items are more likely to be returned because of fit issues, quality problems and not looking as good in real life as online.

“However, pushing customers away from an online return by putting up barriers is the opposite of good customer service. Customers want to engage with retailers on their own terms and we need to find a way to be there for them regardless of channel.”

Eliminating the problem

One way of dealing with the issue of returns is to fix the problem of why they are returning in the first place, says the CEO of one online young fashion retailer: “The cost shouldn’t be an issue – the focus should be on reducing the return rate and delivering the best product. We did a six-month trial of charging for returns and sales did go up, but that was because customers were ordering six sizes of each. So, we found out why they were ordering this and put processes in place to describe our products better, with size guides for fit. We now have a 20%-22% return rate.”

uniqlo

Whitney Cathcart, co-founder and chief strategy officer of start-up 3DLook, which last year launched YourFit, an omnichannel virtual fitting room platform for fashion retailers, says all returns come at a cost and consumers need to be made aware of this: “ Brands forecast the amount of stock that is likely to be returned, calculate the costs, and factor this into their prices. Despite the promise of ‘free’ returns, in actuality, shoppers pay the price for their return label – regardless of whether they keep their purchase.”

Nayna McIntosh, CEO and founder of premium womenswear brand Hope Fashion, says she uses data and customer insight to improve the product offer and more accurately target customers, so that they are more confident before they commit to purchase. “This is a big driver for us at Hope and it’s working,” she explains.

“Our returns are free, but we don’t use this as a selling tool and the work we’ve put into product means that our returns rates are among the lowest in the industry at around 25%. This doesn’t mean we are any less passionate about service, but it proves that by focusing on the product, free returns become less of a challenge.”

Ecommerce expert and managing director of ecommerce consultancy Vervaunt, Paul Rogers, says one of the trends he has noticed among clients charging for returns is to offer free returns to loyal customers.

“We also had a [premium fashion brand] client that charged for returns and trialled the other way around (not charging), and they didn’t see enough of a net benefit to justify making them free.”

Wizz Selvey, founder and CEO of consultancy Wizz & Co and former head buyer at Selfridges, says fashion retailers should also consider a sliding scale fee based on how long it takes a customer to return unwanted items, to encourage stock to re-enter the supply chain more quickly.

With issues around increased processing costs and sustainability, along with the ongoing growth in return values, it is clear the fashion industry needs to act. Zara’s response is likely to pave the way for others. But as customers tighten their belts against the cost of living crisis, retailers that start charging for returns risk alienating customers who cannot return to store, and they may choose to spend with those that continue to provide a free service.

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