E-commerce retailers tighten return policies for upcoming festive season

As the festive season approaches, major e-commerce players like Flipkart and Amazon, along with direct-to-consumer brands, are preparing to tighten their return policies. This move aims to maximize profits and minimize logistical challenges during a period known for a surge in returns.

Experts predict that product returns for categories like fashion, accessories, home decor, and kidswear could be more difficult this festive season. Companies are looking to eliminate the costs associated with reverse logistics, staffing, and packaging, which can significantly impact margins.

High returns during festive season

As per Return Prime, a returns and exchange optimization platform’s estimates product returns can be as high as 30 per cent during the festive season, which typically sees a spike in e-commerce sales. And estimates suggest product returns could cost Indian e-commerce companies a almost $20-30 billion in revenue by 2025. The problem is further compounded by the fact that the rate of returns doubled during the pandemic, despite a 38 per cent growth in e-commerce sales.

What’s more fashion category sees the highest number of returns, followed by groceries and personal care. Impulsive buying driven by attractive festive deals often leads to buyer's remorse and subsequent returns. The cost of reverse logistics, which includes everything from product pickup and shipping to quality checks and refunds, can significantly impact profit margins. Industry experts estimate that returns can account for 10-12 peer cent of the entire product cost, leaving brands with slim earnings.

Steps to discourage returns

To counter returns, companies are reportedly considering a range of measures, including shorter return windows, imposing fees on frequent returners, restricting refunds to store credits, and limiting cash-on-delivery options. While e-commerce companies are keen to curb returns, they are treading cautiously to avoid alienating customers. Returns and replacements remain key drivers of online sales, with many consumers prioritizing the option to return products when shopping online. Any drastic policy changes could negatively impact sales, as eliminating returns entirely could lead to a 50 per cent drop in gross merchandise value (GMV).

E-commerce companies are exploring various tactics to reduce returns:
• Shortening the return window
• Charging a return fee for frequent returners
• Offering only store credit instead of refunds
• Disallowing payments at the time of delivery

Some sellers may also choose to be lenient with loyal customers while restricting return options for others. Platforms like Nykaa and Myntra now charge customers a platform fee to offset potential return expenses. However, the effectiveness of such measures in balancing customer satisfaction with profitability remains to be seen.

Overall, the festive season is likely to witness a subtle tightening of return policies as e-commerce companies seek to protect their margins in the face of increasing return rates. While the industry grapples with this challenge, customers can expect a more cautious approach to returns and exchanges in the coming months.