Amazon is limiting free returns as retail’s “laissez faire” era fades

Amazon ( AMZN ) has built its e-commerce empire by making shopping affordable and foolproof. Didn’t like the pan you bought on Amazon? No need to worry, you had a free return.

However, the days of free returns across the board are over: Amazon is introducing a $1 fee on some returns, marking a notable shift from the company’s early days when its ethos was to grow at all costs.

Yahoo Finance spoke to five retail experts about this change, and they agreed that this was a long time coming, and retail in general is moving in this direction.

“I think the industry should kiss the ground Amazon is walking on to bring the sector back to some kind of economic sanity,”[ads1]; Professor Mark Cohen, director of retail at Columbia Business School, told Yahoo Finance. “Nothing in this life is free, so returns that are free create a huge burden on retailers. They finally come from a ‘laissez faire’ view… This kind of move had to be inevitable.”

John Talbott, a senior lecturer at Indiana University’s Kelley School of Business, noted that Amazon’s newly developed return fees also target a specific type of customer.

“I think this effort is aimed at consumers who are gaming the system,” Talbott told Yahoo Finance. “By that I mean, they are consistent, testers and return… By doing this, Amazon is essentially taxing the behavior of a small portion of the total population, and is better able to serve those who legitimately acquire a product or service, and fully intend to use it.”

Amazon is limiting free returns as retail’s “laissez faire” era fades

Amazon Prime boxes are loaded onto a cart for delivery, October 10, 2018, in New York. (AP Photo/Mark Lennihan)

The data on what returns are costing retailers is staggering: In 2022, customers returned about 17% of the items they bought, worth $816 billion, according to data from the National Retail Federation.

“These returns are such a burden on retailers, not just as a logistical cost, but as a supply chain issue,” Cohen added. “Items do not return to the same warehouse, and those items also usually have to be resold as an emergency product.”

No return fee policies were just not built to last, Merchandising Metrics CEO Jeff Sward told Yahoo Finance.

“It was absolutely inevitable,” he said. “‘Free’ became the most expensive word in retail. Free shipping and free returns have been brilliant as customer acquisition tools, but they now need to be seen as an investment in building a customer base. This investment needs to see some ROI on Free returns gave sort of a safety net to make people comfortable shopping online—mission accomplished. The convenience of free returns has put the return rate through the roof, and that’s unsustainable.”

“The whole idea is to change consumer behavior”

Amazon’s return fee increase is likely to change consumer behavior in some ways – the question is in what way and by how much. Either way, changing how some consumers interact with Amazon — especially those inclined to test and return products — is exactly what the company is hoping for.

“The whole idea is to change consumer behavior, albeit subtly,” Spieckerman Retail president Carol Spieckerman told Yahoo Finance. “The fees apply when alternative locations, including Kohl’s or Whole Foods, are closer. Given the policy details, Amazon may not try to compensate for return costs as much, which increases the likelihood that shoppers will make impulse purchases that benefit Amazon and its partner retailers . The nominal fee isn’t enough to annoy customers, and Amazon’s competitors may even wish it were higher.”

The feedback group’s principal Brian Numainville agreed, telling Yahoo Finance that fees of less than $2 are unlikely to be enough to spark an uproar, especially since these fees only apply in select situations. However, there will be some irritation to go around, and the products that consumers actually buy may change over time, too.

“While it may be annoying to some buyers and many dislike additional fees, this nominal return fee is unlikely to cause a huge amount of upheaval in consumer behavior, except perhaps to change where some buyers return Amazon items to fit the others. “no fee,” Numainville said. “A bigger issue that I think may have a more noticeable impact is the ‘often returned’ marker on some product pages, which can cause a shopper to avoid purchasing an item, wondering why it is often returned. It can shift consumer behavior away from these items and result in different purchase outcomes.”

For Columbia’s Cohen, it all comes back to inevitability: “I think some customers will be put off a little bit, but I also think they’ve been waiting for this day… Amazon has been quietly disenfranchising customers for years that are criminally involved. or just play with them. They need to start looking at their underlying profitability and this is a step in the right direction for them.”

Anthropologie is another retailer that has introduced some return fees.  (Anthropologie website)

Anthropologie is another retailer that has introduced some return fees. (Anthropologie website)

“It’s hard to put the genie back in the bottle”

In all likelihood, retailers across the board will likely use this as an opportunity to start charging for returns.

“I think the industry is going to lock horns with Amazon,” Cohen said. “I think the move will be slow, but other retailers will move in the direction that Amazon is going, using Amazon as a shield.”

Increasing return fees will remain a delicate dance between businesses and their customers.

“More retailers are trying to implement return fees, but everyone knows they have to tread lightly,” Spieckerman said. “It’s hard to put the genie back in the bottle, and Amazon released it in the first place.”

The next phase of e-commerce is likely to look quite different, as the business model is changing.

“The lack of profitability in the e-commerce universe is well known,” Sward said. “Yields are not the only factor in that lack of profitability, but they are a big part of it. The e-commerce model is in the middle of an evolutionary process seeking sustainable profitability.”

But there’s one thing you can be sure of: the days of arbitrary free returns are over.

“The industry is moving away from this ‘anything goes, anytime’ philosophy that’s just a killer financially,” Cohen said. “I think this is the beginning of a series of changes we’re going to see as the industry recovers financially.”

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.

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