There’s No Such Thing as a Free Return
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“Bracketing,” ordering clothes in three (or more) sizes and returning what doesn’t fit, has been normalized over the last few years. Blame the pandemic, the decline of mall culture, or erratic sizing, but the practice adds complexity to e-commerce models. No wonder retailers are looking for ways to pass along the cost.
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In 2022, American consumers returned roughly $817 billion in goods, according to the National Retail Federation and Appriss Retail. That number is trending up, which means that the costs associated with reverse logistics, which is exactly what it sounds like, are rising as well. In an August survey conducted by UPS and Happy Returns, retailers reported a 19% YoY increase in bracketing. To put the seriousness of the issue in perspective: A 2022 Pitney Bowes study found that online returns cost retailers an average of 21% of order value.
Other estimates suggest bracketing might be even costlier. In 2021, reverse logistics firm Optoro estimated that it costs a company 66% of the price of a product to process a return. (Granted, a high number was in the best interest of that business.) And none of that factors in an ugly truth: Many shoppers seem to use bracketing to get over the threshold for free shipping.
For the past couple of years, retailers, sensitive to inflation-wary consumers, have been reluctant to raise prices, even lowering them to encourage more purchase activity. As a result, the holy grail of a two to two and a half percent markup has been difficult to achieve for some brands, bracketing makes that harder because the sale itself creates risk. Returned items can’t always be sold again.
“Sometimes for fast fashion items, you can’t sell them at full price anymore. They’re already at a markdown, so returns are incredibly costly,” says Heidi Isern, vice president of experience at Narvar.
Also, seasonality represents a huge issue.
“In fast fashion, by the time you ship out products … have consumers try it on and then eventually return it, it’s already out of season for them because they’re changing their assortment multiple times a month,” says Vijay Ramachandran, vice president of market strategy for global e-commerce at shipping-services company Pitney Bowes. “By the time it gets returned, it’s essentially junk to them. They have to write it off, liquidate it.”
In essence, retailers have three choices:
Eat the costs.
Charge return fees.
Charge more for products.
Choice two is the most popular at the moment. According to Happy Returns, 81% of retailers started charging for at least one return method in the last year. Retailers currently charging return fees include Zara, H&M, Abercrombie and Fitch, J. Crew, and JCPenney. Fees typically range from $4 to $12, but add up.
But choice three is looking better and better.
“Much like with insurance claims, when costs start mounting…. They have a premium increase to cover that and it goes to everyone,” says David Ian Gray, founder of Vancouver-based retail advisory firm DIG360. “Everyone might be paying a little bit.”
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