Online firms, even more than bricks-and-mortar retailers, have little choice but to be generous with their returns policies. For some online retailers up to half of everything they sell comes back. Studies find that just handling each returned item costs online sellers between $6 and $18, and that is before the losses from items that are returned in unsaleable condition http://econ.st/1bQJQ1B
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E-commerce firms have a hard core of costly, impossible-to-please customers
Online firms, even more than bricks-and-mortar retailers, have little choice but to be generous with their returns policies: few people would buy things they have not tried on if they could not send them back. Return rates can be alarmingly high: for some online retailers up to half of everything they sell comes back. Studies find that just handling each returned item costs online sellers between $6 and $18, and that is before the losses from items that are returned in unsaleable condition. In 2014 the European Union will adopt a law similar to Germany’s, obliging online firms to offer a no-questions return period of 14 days. American law is not so generous, but online firms there still face hefty costs from customer returns.
Like physical stores, online clothes sellers suspect they have a hard core of habitual returners. In Germany there has been talk of “Zalando parties”, with giggling teenage girls ordering crateloads of stuff for a big weekend, only to send it all back (complete with forgotten car keys and other such stuff in the pockets).
A new study by Christian Schulze of the Frankfurt School of Finance and Management seeks to put some hard numbers on the scale of the serial-returner problem. Mr Schulze studied 5.9m transactions in Germany, involving 166,000 customers, for a large European online retailer. He looked only at those who had bought at least five items over a five-year period, and found that 5% of them sent back more than 80% of the things they had bought; and that 1% of customers sent back at least 90% of their purchases. Without the cost of returns, the retailer’s profits would be almost 50% higher, the study found.
Dealing with these apparently unsatisfiable customers is not easy. In July 2013 there were reports that Amazon’s German operation was “sacking” some of them (the company has not confirmed this). But this risks a backlash: rejected shoppers are likely to rush to the newspapers or social media to complain—and their gripes may turn other, more profitable customers against the firm.
It may help for online sellers to be clear about what they would regard as abuse of their returns policy—rather like the “fair use” rules of broadband and mobile-internet providers. High-returning customers who buy a lot of stuff, and are thus worth keeping, could be offered incentives to reduce their return rates. And those who, in the end, must be cut off could still be mollified. When 1&1, an internet-service provider, had to fire a few flat-rate customers for using huge amounts of bandwidth, it gave them a €100 ($138) farewell present.