Julio Cortez/AP
Free returns aren't free for retailers.
Retail ers are in a "race to the bottom" when it comes to free returns, a retail expert told Business Insider.- Customers are expecting free returns when they order online, but that's costly for retailers themselves.
- As a result, many are consulting with third-party "reverse logistics" firms on how to keep free return costs.
Free returns are becoming the norm for most retailers. But they're not at all free for the retailers themselves.
Many are consulting with third-party "reverse logistics" companies on how to keep costs down and some even track which customers are "abusing" returns, said Pete Madden, a director in the retail practice at AlixPartners. XPO Logistics says "reverse logistics" is one of the fastest-growing areas in the industry.
"Retailers need to put some guardrails around free returns," Antony Karabus, CEO at HRC Retail Advisory, told Business Insider. "They're beginning to realize that free returns and free shipping is killing them."
Three-quarters of Americans who returned a purchase online shipped it back to the retailer, rather than taking it to the store, according to a UPS study.
Shipping back returns costs retailers twice as much than the customer taking it back to the store themselves. According to AlixPartners, the returns process costs retailers $3 per package when customers return them to a store or up to $6 per return when shipped to a distribution center. It costs $8 per return when returned to a third-party processor.
That adds up quickly. On Dec. 19 alone, customers returned 1.5 million through the mail, UPS said. Between 10% to 30% of goods purchased online are returned, depending on the sector, according to an XPO study.
It started with Amazon, as it often does in the world of shipping.
"Retailers were forced into it because Amazon has created the expectation of free returns," Karabus said. "Amazon set the bar very high that resulted in retailers feeling that they better follow suit in order to to avoid losing the customer."
Now, following in the steps of free shipping, a store's return policy is crucial to win over customers. Optoro, a firm that helps retailers optimize their returns, has found that 79% of consumers check return policies before buying products.
"There's a mentality fairly pervasive viewpoint in retail that you have to save the sale, whatever it takes to grow top line," Madden said.
To minimize the ultra-costly returns process, Madden said retailers are taking steps to reduce the returns in the first place. Clothing websites have made it easier to check sizes and fit. Brick-and-mortar stores might offer gift cards if you return in store. And, if it's not possible to offer in-store returns, Madden said retailers will consult with third-party reverse logistics firms to optimize the returns network.
"A more extreme example," Madden said, is using third-party tracking to see which consumers are "abusing" the returns policies.
Restoration Hardware and Lululemon are offering loyalty programs with a membership fee, Karabus said. That offsets "free" shipping and returns.
"Retailers have to provide something better and different in order to avoid a race to the bottom," Karabus said. "If retailers give everything away for free they're not going to make it."
