How to Build a Paid Returns Strategy

Without P*ssing Off Customers

For the past decade, free returns have become the standard practice in ecommerce. Customer expectations morphed into customer entitlement, and brands were forced into accepting the hit to their margins .

But the trend is changing.

The last year has seen an uptick in high-profile brands charging customers for returns - including the likes of H&M, Zara, PLT, and more. The consumer response has been mixed, to put it kindly.

It’s a real dichotomy that a lot of brand leaders are wrestling with. On one hand, you know that free returns are hammering your bottom line (and wreaking havoc on stock volumes), but on the other, you don’t want to negatively impact conversion rates or be on the receiving end of a PR sh*tstorm because you’ve started charging customers for returns.

Here’s the rub. For the majority of brands, there’s no debate around whether or not they want to introduce paid returns, it’s a commercial no brainer. The decision they actually need to make is what kind of paid returns strategy they adopt, and how to best execute it.

In the first instalment of this Paid Returns series, we’re sharing the most effective paid returns options that new luxury brands can offer, as well as the main factors to consider when making the switch. Including:

• What Does Good Look Like? Examples of returns strategies and customer incentives from fashion and new luxury brands.

• Setting Objectives: What paid returns options and tools are available to brands.

• Planning an Implementation Roadmap: Evaluating vendors, Cross-functional effect, Business decisions & Timelines.

What does good look like

Let’s take a look at some examples of brands that have introduced paid returns:

Oh Polly

Oh Polly’s returns policy ticks all of the boxes. Customers that wish to receive a refund are subject to a £2.99 fee, deducted from the refund amount. Exchanges and returns for store credit are free for UK customers. The brand also incentivises the store credit option by giving customers a longer timeframe to return (“21 days to return your order for a refund or an exchange, extended to 30 days to return for store credit”).

Aside from that, the UX is clear, easy to navigate, and even includes a returns specific chatbot popup on the returns policy page.  

H&M

H&M offers free returns to their members, otherwise a £1.99 fee applies - a great incentive for customers and a way that brands can grow their loyalty base and increase CLTV. Customers can also return items to H&M stores free of charge (a U-turn the brand made after receiving a fair whack of backlash for initially charging for in-store returns back in September 2023). 

Looking at the reviews on a BBC article that covered the H&M U-turn, we can see that there is mixed bag of negative and positive sentiment:

NET-A-PORTER

NET-A-PORTER does still offer customers free returns, but only under the condition that orders are returned “in a new and unused state, in perfect condition, with all protective materials in place”, as well as returned from the same country that they were originally shipped to. Otherwise charges or a reduced refund will apply.  The brand also offers customers the choice of a refund or store credit to their customer account. Exchanges are possible, and it’s clearly stated in the return and exchange policy that they monitor the number of returns made by customers and accounts could be closed if frequent returns that are in breach of policy occur.

Set your objectives

Adding a £1.99 flat charge on all returns and calling it a day is one strategy…but it’s probably not a very good one.  

If you’re going to start charging for returns, you need to figure out what your biggest priorities are. Is it to lower your return rate, offset the business costs of returns, create a new stream of revenue (i.e. profitable returns), reward loyalty? Our guess is that it’s probably a combination of many objectives. You should consider implementing a blend of  paid returns options, rather than going for a one-size fits all approach.

Deduct returns fees from the customer’s refund

Deducting charges from refunds rather than making customers pay for return shipping is one of the most effective ways that brands can keep customers on side, while still covering the cost of return shipping. 

Offer returns incentives to increase CLTV

You can choose to waive returns fees for customers if they accept store credit rather than a refund (this is currently a feature in early access on Shopify). This option is great because it does more than cushion the blow of reverse logistics costs - it can create a new revenue stream for the business and increase CLTV. 

Penalise repeat offenders

One way to target serial offenders is by using business rules in the back end of tools like Loop or Swap to penalise customers for excessive returns. For this, you’ll need to build out profiles of what constitutes an offender versus a VIP (because they look deceivingly similar on first glance). 

Flip returns into exchanges

Consider offering customers the option to exchange items (e.g. swap an item of clothing that doesn’t fit for another size). This can help to reduce bracketing rates, which is one of the most common reasons for returns in the first place. Admittedly, tackling bracketing rates is a much more complex issue (one that we’ll get into in a future blog), but allowing exchanges is a great place to start.

Shopify doesn’t have the features to offer exchanges yet (which is one of the reasons why Loop and Swap are so popular). What you’re doing is automating what would have been done manually in terms of manually processing a return or credit and then creating a new order.

Plan out your implementation roadmap

Once you’ve determined what paid returns options you want to implement, you need to start working on a game plan.

Evaluate Vendors

The majority of reverse logistics partners have long contracts, so before making any changes, it’s vital that you sort out any existing contracts you have in play. From there, you can start to evaluate other vendors on the market that offer paid returns options that you want to switch on.

Consider the Cross-Functional Effect

It might not seem like it, but any returns optimisation project has a big cross functional demand on a business. Digital, technology, and operations teams will all feel the impact of implementing paid returns, so you need to ensure all relevant stakeholders are involved and aligned in terms of project priorities and deliverables.

Make Decisions

Once your priorities are confirmed, you can start making design decisions, particularly around what the CX will look like. You’ll need to consider how specific areas of reverse logistics will be managed (e.g. label printing and its associated costs). Documentation will also have to be created or updated to support integrations and the flow of business processes around returns management.

Plan Timelines

An ambitious timeline for implementing paid returns is 6-8 weeks, taking into account the time it takes to build, test, and launch. So it’s important to make sure that you’re not planning to do this smack in the middle of a peak sales period when key stakeholders’ focus is elsewhere. Does that mean that if you want to have paid returns up and running in time for Black Friday/Cyber Monday, you need to get the finger out now? In a word, absolutely.

And on that note, you can drop us an email at hello@commercethinking.com if you want to chat about what the best paid returns options are for your business. Stay tuned for Part 2 of our Paid Returns series, where we’ll be getting into how to reverse engineer your reverse logistics.