What Is the Cost of E-Commerce Returns?

Turns out, that shirt you returned for free can have costly consequences.

In 2019, some experts predicted that the cost of product returns could pass the trillion dollar threshold in the next several years. Many disagreed. 

That’s quite a big jump from, at the time, the significant $309B mark.

But then the Covid-19 pandemic happened. 

And suddenly, two years later, the annual cost of US returns spiked to more than the previous two years combined. By the end of 2024, it came close to $900B. 

What does this mean for merchants? Let’s try to break it down…

Breakdown: The Cost of Returns in US Retail Industry

The pandemic influence on the return logistics industry is obvious.

Just check this huge spike from 2020 onwards:

What happened? Lockdowns rendered in-store shopping impossible, catapulting the e-commerce market. 

Then, online merchants started offering easy online returns to incentivize sales. The returns started surging.

Here’s another chart to give you better perspective:

In five years, the return rate of ecommerce products doubled. 

In other words, ordering and returning a product has become almost a regular occurrence. Nowadays, you can expect every sixth product you sell to return back.

Crazy, right?

This created a financial and logistical horror show for retailers, though:

• Users couldn’t see, test, or try-on their products in person.
• Free shipping incentives led to increased amounts of returns.
• New practices developed, such as bracketing. 

Bracketing? Yeah, about that…

It’s not parenthesis: Bracketing in e-commerce

What is bracketing? Bracketing is a recent online consumer behavior practice where you buy the same item in multiple sizes or colors—choose the one that fits—and return the rest.

And if you’re wondering how often this happens, here’s a little visual cue:

Almost one in two consumers engaged in bracketing pre-pandemic. And then the practice spiked, with the trend not stopping since. 

When we first covered bracketing in 2022, we mentioned that it’s becoming a habit among consumers, but the drawbacks can be catastrophic for retailers:

• The time and money it takes to get the items back
• The state items are returned in (e.g. retailers end up throwing 25% of returned items)
• Removing items someone else could buy from stock
• Non-economic impact, such as the one on the environment

How to deal with bracketing: Most obviously, you’d have to make free returns less convenient for users. Like implementing a returns fee, for example.

In fact, a lot of merchants do it for that reason:

Almost 40% of merchants add a returns fee to discourage the abuse of returns, while 36% do it to offset the cause of returns.

This tells us that excessive bracketing is the problem.

But that poses a different kind of challenge…

Users expect free returns

It might be reasonable, but that doesn’t mean that your customers will be happy about it.

That’s because most shoppers will look whether they can return a product for free:

76% of shoppers see free returns as important when shopping online. That’s a lot.

On the retention side, we’re also in a pickle. A poor returns experience makes it 67% more likely that a shopper won’t return. Ouch.

Cart abandonment? Almost 46% left their purchase if a returns method wasn’t convenient. Yikes.

The big challenge: How can you discourage a practice that most shoppers expect?

Stay tuned, because we’ll have some answers at the end of this story.

But before that…

What can you expect if you implement a returns fee?

We don’t have to guess.

We can look at the data:

On the bright side, more than half of merchants recouped revenues from return fees, while there were also a significant reduction in return rates.

But on the not-so-bright-side, almost 48% reported a decrease in average order value. Which might be linked to shoppers not ordering multiple products with intent of returning some.

The two worrying signs are the number of users that reported losing customers (42%) and decrease in sales (37%).

What can you do: Whip out the calculator and try to see whether the cost losing customers and sales outweighs the logistical costs of returns.

If your goal is acquisition and sales, implementing return fees might not be a good idea.

On the other hand, if you think all the extra costs are too much to bear, then implementing a fee might be your only option. And rely on some tips we’ll provide below.

But first, the grand question.

Will bracketing fade over time?

If you were expecting good news… oh boy.

Bad sign: With upcoming generations, bracketing gets more frequent:

If you’re selling to Zoomers, know that 14% will always engage in bracketing practices when shopping clothes online, while 37% will do it sometimes. But combined, half of the entire generation “brackets.” 

Millennials come close with 10% doing it always, and 36% sometimes. A big challenge.

And you don’t want to dig your own hole. So what can you do?

Bottom line: The State of Retail & Online Returns, and How to Prevent It?

The rate of returns doesn’t show any signs that it will drop back to pre-pandemic levels. 

In fact, with consumers now perpetually online, there’s a case for bracketing and other consumer practices to remain prominent. Naturally, this could fuel your frustration and pose a real danger to your business.

So how to prevent returns then? You can’t. Every company will have to face customers sending products back.

But you can try to reduce it without making the return experience harder or more costly by:

• Providing as much information as possible on your online product pages: Sizes, in-depth descriptions, specific measurements, detailed close-up images
• Including reviews and user-generated content: This allows customers to see how products work or fit in real life.
• Bundling products: A research by Science Says found that providing a gift with a high-ticket product will make customers less likely to return it. Interesting.

It will be interesting to see how online retailers will tackle bracketing and similar practices in the future without messing with the “free returns, no questions asked” policies. And if it’s even possible?

The data seems to suggest otherwise.