More online shoppers are expecting free return service in exchange for their patronage. In theory, this shouldn’t pose a problem to either side of a transaction. The customer gets their money back, the retailer gets their merchandise back, and everyone ends up in the black. But online retailers are starting to discover that offering free return services incur many hidden costs.
According to business consulting firm Alixpartners, the shipping fees a retailer is required to pay for a free return service run twice as much as the customer would incur from merely taking a product back to a store. It’s $3 to process an in-store return, $6 when shipping to a private distribution center, and $8 when processed by a third party. That’s not much by itself, but when you have three-quarters of Americans returning holiday gifts in a combination of all three methods, those costs add up.
Many retailers aren’t sure where to draw the line. In order to compete with larger companies like Amazon who offer free shipping and free returns, other retailers need to offer similar services. Many smaller retailers have been consulting “reverse-logistics” companies in order to keep costs down, as well as prevent customers from abusing return systems. HRC Retail Advisory CEO Antony Karabus told Business Advisor that “Retailers need to put some guardrails around free returns. They’re beginning to realize that free returns and free shipping is killing them.”
