The impact of extended returns policies for retailers and customers

Many retailers have announced that they will be extending their returns policies to help customers adapt to the current situation. Coronavirus has certainly forced businesses to make critical decisions over a very short space of time, with the ability to engage in normal shopping practices removed and adaption required immediately. So, what does this mean for retailers and consumers regarding their recent purchases?

Since the pandemic began, retailers have been making many operational changes to support their customer base and local communities. This situation around returns policies is no different. Some examples include, H&M, extending its return policy from 28 days to 100 days for both in-store and online purchases and New Look extending its returns period to 90 days. Additionally, TK Maxx states that if a customer is unable to return an item within the usual 28-day window due to store closures, it will accept returns for 30 days from when its stores re-open.

Although this is great for consumers, the strategy could have implications for retailers by affecting accurate conversion rates, profit margins and incurring a lot of unsustainable waste. It will therefore be crucial that retailers regain control of this area when normality returns.

Why extended returns?

Returns policies have often been the defining feature between online and offline retailers. Without the ability to try on items or experience them, many online stores opt for relaxed rules when it comes to returns, despite the impact it may have on profit margins. Many have accepted this as part of running an online store however, 33% of online retailers who offer free returns offset the cost by charging for delivery.

Retailers with a successful omnichannel presence may have a returns policy where items can be returned to the store instead of returned by post and bricks and mortar stores mainly abide by the 28-day or 30-day rule given the ease of the process. Now, retailers with both bricks and mortar and omnichannel stores are having to rethink these restrictions in line with recent events to ensure the longevity of their customer base.

It’s always in a retailers interest to consider its consumers’ ethical priorities, with many retailers coming under fire for not closing sooner. We can assume the decision to create extended returns policies has been in-line with retailers prioritising ethical business practices, however it won’t be without certain implications.

The impact on retailers

At the end of 2019, Forbes discussed 2020 as the year retailers would take control of returns policies in the hope of minimising the negative impact on profit margins. In a few short months, that outlook has completely changed.

With the announcement of extended returns, the time of year is less than favourable as we approach the change in the seasons. As consumers typically begin to stock up on holiday clothing essentials, we may see a surplus of summer clothing that retailers will find difficult to shift in the winter months – hopefully when some normality has been restored.

In general, returns can skew the profit projections of a retail business as products that would otherwise be available are removed from inventories, creating shortages. Returns, especially when made to online retailers are unlikely to be deemed fit for resales and results in a negative cash flow as well as having a surplus of useless units. Clothing in particular is often superseded by next season’s range, having little or no “salvage value”. Typically, anything less than the original condition will need to be sold at a discount and the increase in waste can result in a negative effect on business’ environmental responsibilities.

Before Covid-19 became the issue it is now, FashionUnited predicted that online returns in the UK would reach 5.6 billion pounds by 2023, with the fashion sector hit hardest. As restrictions increase we would assume this estimate may be surpassed – however, fashion retail sales dropped by up to 29% year-on-year during lowest sales day in March in the UK, meaning there may not be as many returns as expected.

Managing the shift

Extending the returns policy may sound like a difficult decision for retailers, but there are many positives that can result from these extensions. The coronavirus pandemic has forced retailers to reassess their returns systems and adapt accordingly, as online returns can be easily made in-store, but the reverse may not be necessarily true for instore returns online.

This is an opportunity for retailers to reconcile their store systems with their online systems to ensure that the processes can save retailers time and manpower when they are issuing returns. When normality resumes and people return to the high street, in-store returns will help to reduce shipping fees and it will offer retailers the opportunity to generate more sales from their physical store.

Returns have been a long-standing issue for retailers both online and offline before Coronavirus took over and they should be alert to the fact that in the current climate, having generous policies will likely result in fewer customer losses and churn. Consumers themselves are going through a difficult period and will likely remember the businesses who made their lives that little less so.

Return of the customer

Previous to the pandemic, Narvar reported that 96% of consumers said they would shop with a retailer again based on an easy return experience. 56% of shoppers were also “much more likely” to shop with online retailers that allowed for in-store return. Therefore, it’s important to remember that over half your customer base will appreciate any flexibility with returns policies.

Retailers will always have to investigate new ways of minimising the number of items being returned and tackling serial “wardrobers”. For now, extending returns policies will be much more beneficial to retailers in the long term and like the rest of the world, retailers will need to adapt to the changing situation as important business decisions are having to be made being made each day.

Ciaran Bollard, CEO at Kooomo