Shipping costs: less returns, even less retention

The number of returns for online purchases continues to rise, especially for online fashion items. Even though retailers first offered free shipping and free returns as much as possible, this trend seems to be changing. Large retailers such as H&M and Zalando already require consumers to pay a shipping or return fee. What effect do these costs have on consumer behaviour? And if you want to pass on costs to the consumer, what is the best way to allocate your money? AfterPay investigated the relationship between shipping costs and returns.

Last year's research from NOS and data from AfterPay showed that a return costs the retailer approximately €12.50 on average. In view of the increasing number of returns, it is not entirely inconceivable to pass on (part of) the costs to the consumer. The following insights were generated on the basis of transactions with AfterPay in 2018 within the fashion industry.

Effect shipping fee on returns - AfterPay

Shipping costs result in lower order amounts
For fashion retailers who do not charge shipping costs, the average order amount at the time of purchase is €104.00. €53.00 remains after deducting returns. If we look at fashion retailers who do charge shipping costs, we see lower order amounts; at the time of purchase it was €83.00, after deduction of returns it was €49.00. This is an absolute difference of €4.00 and a relative difference of 8% per order. This amount, multiplied by the number of orders, has a major impact on total turnover.

Reduced retention when charging shipping costs
Consumers are more likely to return to webshops that offer free shipping. Retention is 76% lower for webshops that charge shipping costs. Research has shown that free shipping is a decisive factor for when consumers choose a webshop. 55% of Dutch online shoppers consider free shipping to be a must, according to research by Ruigrok NetPanel in 2018, which was carried out on behalf of AfterPay.

Shipping costs result in fewer returns
Free shipping increases the number of returns. For webshops that offer free shipping, the return percentage is on average 11% higher than for webshops that do charge shipping costs. Consumers therefore order more when they do not have to pay shipping costs, but they also return more.

Whether to charge or not to charge shipping costs turns out not to be a straightforward issue. Free shipping increases order amounts and retention for the average fashion retailer. However, the return rate is also higher. As a retailer, it is important to take these factors into account. We will soon be sharing more insights on the impact of return costs and transaction costs.

The increase in the number of returns seems to be related to the consumer's need for certainty. This is the main reason why more and more consumers choose to pay after delivery, but also the reason why consumers return more. As a retailer, you can offer a consumer more security by creating the right expectations.