Zara’s Returns Fees and Their Market Ramifications
Zara’s surprising decision to introduce fees for returns to drop-off points contradicts everything clothing and footwear retailers have done to make shopping online more convenient, including reducing the cost of delivery and returns. As of early May, Zara returns to a drop-off point in the UK now cost GBP1.95 (US$2.39), while returns to stores remain free. This may prove an easy way to improve the profitability of operating online, so other apparel retailers are likely to follow suit. Still, it will be interesting to see how consumers react when discretionary incomes are already stretched.
Ensuring that retail operations are profitable has become even more challenging since Covid accelerated the shift to purchasing online. Returns rates initially dipped during Covid as purchases were heavily dominated by loungewear, for which fit is less important, but as product mixes have returned to pre-pandemic trends, so too have returns rates. The significance of the returns dilemma was evidenced by the boohoo group’s profit warning in December 2021, and it is not the only apparel player to cite elevated returns rates as an important issue weighing on its profits. More recently, these factors have been compounded by higher fuel costs as a result of the Russian invasion of Ukraine — no doubt a factor in the Post Office increasing its prices from April.
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Will Zara be a trendsetter for the rest of the fashion industry?
However, return fees will decrease the appeal and convenience of purchasing online, so Zara is bold to be the first major fashion player to make this change. The retailer will likely experience higher footfall in-store from shoppers wishing to return items for free, which it will have to carefully manage to minimise the potential of large returns queues, which can already be quite long. It also needs to ensure that the experience is conducive to those returning items making additional impulse purchases while in-store. Zara stores are also not very accessible for many shoppers, as its locations are concentrated in cities and its store count in the UK is quite low (59 in its FY2021/22). Accessibility would be less of a problem for retailers with more stores in a wider variety of locations, such as H&M and New Look, however, these players are still reducing their physical presence, so are becoming less accessible.
The question then arises of whether Zara will be a trendsetter for the introduction of postal returns fees. Many retailers will think that if Zara can get away with it and remain appealing among consumers, they can too — but Zara has been gaining market share in the UK throughout the last few years, with high brand desirability and a loyal customer base as a result of its trendy styles and limited product runs that create a sense of urgency to purchase, so other fashion retailers may struggle to convince shoppers to pay the extra cost. Returns charges will be most beneficial for retailers targeting young shoppers, who are particularly prolific returners, likely to order a vast number of items and return the majority. However, shoppers who pay for delivery saver schemes, such as ASOS Premier and boohoo Premier, will likely be unwilling to pay an additional fee to return items. Next has always charged for postal returns, but free courier returns are included in its Next Unlimited scheme, so retailers could keep free returns exclusively for their loyal shoppers within these schemes to encourage sign-ups, with additional benefits important to lure shoppers in considering the financial pressures many are under.
Sustainability benefits
Even with numerous technological advancements in the past five years, such as using augmented reality to see how clothing items fit models of different shapes and sizes, very few retailers have fully integrated such tools into their propositions, so technology has not yet been able to mitigate the issue of returns. Additionally, the rise of buy now, pay later options has compounded the culture of consumers making large orders with the intention of returning the majority of items. Perhaps what the industry needs is returns fees to change this culture —which would not only increase profits for retailers, but also provide sustainability benefits through the reduction of greenhouse gas emissions from transportation and fewer returned, unsaleable items being sent to landfill.
About the author: Emily Salter is a Senior Analyst at GlobalData specialising in the apparel industry, with a particular interest in online retail and sustainability.
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