[New York Diary] "Free is over, even $1 must be charged"... The 'return paradise' U.S. has changed

Is "Return Paradise" Coming to an End?
U.S. Retailers Shift Away from Free Return Policies
Rising Costs and Changing Consumer Habits Drive Policy Changes

"Is the era of free return shipping over?" This is one of the recent questions posed to the U.S. retail industry facing concerns of an economic downturn. The U.S. is regarded as a so-called 'return paradise' where returns are very easy. Free return policies, exemplified by Amazon, have significantly contributed to the growth of the U.S. e-commerce market to its current scale. However, since the pandemic, soaring inflation and recession fears have increased cost burdens, leading companies to change even their free return policies.

[Image source=AP Yonhap News]

The U.S. department store chain Kohl's has started charging consumers for shipping costs on products returned online from this month. Neiman Marcus department store also set a $9.95 return fee for online returns. If customers do not want to pay the fee, they must visit the store within the return period. Even Amazon, a pioneer of free returns, has revised its well-known 'return-friendly' policy to charge a $1 return fee.

This contrasts with the pre-pandemic trend of actively expanding free return policies under the premise of enhancing consumer convenience. According to an analysis by logistics company Narvar of 200 retailers, about 41% of companies charged return shipping fees last year, up from 33% the previous year. This figure has increased further this year.

The reason behind this change of heart by U.S. retailers is the rapidly rising cost burden. The convenience of free returns is evaluated to have driven return rates to unprecedented levels along with the increase in contactless shopping during the pandemic era. According to a report released by Insider Intelligence at the end of last year, the proportion of returns by U.S. consumers in 2022 reached 26.5% of total spending, an increase from 19% before the pandemic. The National Retail Federation (NRF) survey also showed that the scale of returns by U.S. retailers last year reached $816 billion, far exceeding the defense budget of the same year.

A major factor behind this is the acceleration of the U.S. consumers' shopping practice called 'Bracketing' in recent years. Many U.S. consumers do not order just one pair of shoes online. Since they are unsure which size fits exactly, they purchase multiple sizes simultaneously, try them on, and return the rest. This practice of buying the same product in various sizes or colors online is called bracketing. It was possible only because of the existence of free return policies.

While customers pay zero cost for the return process, retailers incur additional shipping and labor costs for each refund. The cost and time required for restocking procedures to resell the returned product cannot be ignored either. Narvar estimates that the cost of the return process for an average $100 product is about $26.50. Narvar's analysis suggests that reducing the number of returns by half could increase a company's profit by about 25%. Laura Garrett, marketing manager at Rebound, said, "Rising costs are eroding retailers' profits," adding, "Recovering return costs has become an issue for companies."

U.S. retailers facing cost burdens have two main options. The first is to pass the costs on to consumers. Many companies, including those mentioned earlier, are revising policies to charge return fees, shorten return periods, or provide store credit instead of direct refunds. The second is to find alternatives. This includes adding detailed information on websites to eliminate the need for returns from the start, rechecking product quality, and utilizing augmented reality, among others.

If the former is imposed on consumers, the latter is the responsibility of companies. Considering that a significant number of products are ultimately discarded during the return process, raising environmental concerns, this is also the direction retailers must inevitably take.