UK retailers could be cutting a £34.1 billion hole in annual sales by tightening their returns policies, with new research suggesting the very measures designed to protect margins could end up driving shoppers away.
The figure comes from Locus, a global transportation technology company, which has estimated the potential costs of the industry’s growing return on investment. Against a backdrop of faltering consumer confidence, the warning comes at a bad time for an already embattled sector and cautious households.
The latest Office for National Statistics data shows that total UK retail spending on textiles, clothing and footwear reached around £57.8 billion in the last 12 months. Using its consumer sentiment data, Locus estimates that £34.1 billion of that spending, more than half, could be at risk each year if consumers cut back on purchases as return policies become more restrictive.
A survey of 2,000 UK consumers by Locus paints a clear picture of how consumers have gone to the trouble of paying to send goods back.
Another 59 percent said they would be less likely to make a purchase if a retailer introduced return fees or strict return policies, while 56 percent said they would simply switch to a different retailer entirely. Crucially for any retailer hoping that stricter regulations will pressure customers to keep more of their purchases, only 38 percent said they would hold on to items rather than return them at checkout. One in five consumers, currently, expects or plans to return goods from most of the orders they have placed.
The findings cut across the grain of a strategy now spreading across the fashion industry, where rising return costs have prompted a wave of refunds, shorter return windows and stricter eligibility rules. ASOS is the latest to come under fire, with regular returns facing new charges under a revised fair use policy. Locus research suggests that such a move could be unintended, avoiding both spending and loyalty in an environment where consumers are easily lost.
For Subhro Chakraborty, chief revenue officer at Locus, the data points to a measurement practice that many marketers are getting wrong.
“Recovery has become one of the most difficult challenges facing retailers today,” he said. “While there is understandable pressure to reduce costs associated with returns, our research shows that overly restrictive policies risk creating friction at a key point in the customer journey.
Chakraborty argued that consumers are always more sensitive to anything that increases the perceived risk of shopping online, especially in fashion, where fit, size and product expectations can vary greatly from one purchase to the next.
His goal is to deal with returns to the source rather than the district. “Instead of relying solely on strong returns processes, retailers can achieve greater success by investing in technology and operational improvements that reduce unnecessary returns before they happen,” he said, pointing to better product knowledge, improved size targeting, sharper inventory visibility and more efficient fulfillment.
“By improving efficiency throughout the supply chain, retailers can reduce returns-related costs while maintaining the flexible shopping experience consumers expect. The retailers that will succeed are those who use technology and customer insights to create a better post-purchase experience while simultaneously reducing avoidable returns. The goal should be to improve shopping confidence, not undermine it.”
It’s a message that coincides with a broader shift in the way the industry thinks about profit. Rather than flexibly reaching for discounts or penalties, a growing number of retailers are turning to technology to protect their margins, using data and automation to drive out operating costs without passing on the pain to the customer. As the digital transformation of UK retail accelerates, the question for boardrooms is whether the cheapest way to reduce returns is to charge them, or design them entirely.
In an industry that counts every basket, the £34.1 billion is a sobering reminder that the road to healthy success may be through the warehouse and the product page, not a refund policy.
