Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Once again, my vanity had got the better of me. A pair of “slim fit” beige corduroys ordered from Target, it transpired, could not be fastened without the help of a mechanical winch.
The bigger surprise, however, came when I attempted to return the trousers and was promptly issued a refund along with the following message: “Feel free to keep it, recycle or donate it! If the item was damaged, please dispose of it safely. Thanks for your help!”
Intrigued, I turned to Google, and learnt this practice — dubbed “returnless refunds” by analysts — was being employed by some of America’s largest retailers, including Amazon and Walmart, as well as a host of smaller companies.
The business rationale behind the phenomenon is, at first glance, pretty solid. Online returns are an increasingly vexing problem for US retailers, who collectively lost $248bn from the practice last year, according to research from the National Retail Federation. Often the cost of shipping and processing a return is almost as large, if not larger, as the cost of the item itself. Occasionally, the product is damaged in transit and can’t be sold on. There’s an environmental cost too, from transportation and disposal.
But retailers — deluged by returns that have only increased since Covid precipitated an ecommerce boom — have kept quiet about the scheme. Target, for example, makes no mention of “returnless refunds” on its site.
The secrecy is by design, says Sender Shamiss, chief executive of goTRG, which manages returns for some of the biggest US e-retailers, as Amazon, BestBuy and others try “to figure out how to stop bleeding dollars from handling returns that were very, very low price point”.
It is selective, however. It turns out I am among those chosen by an increasingly sophisticated algorithm that weeds out serial returners and scammers from loyal customers merely unable to accurately measure their waistlines. Behind the policy is “a formula of everything you buy and the projected net profit that the retailer is going to make, or gross margin, on that particular customer”, Shamiss explains. “If you’re trusted, you’re going to get to keep your item basically 75 per cent of the time.”
Talking about the tactic would only encourage fraudsters to order and submit returns in the hope of being allowed to keep the items, analysts say.
But the “soft launch” of the scheme is indicative of a broader reluctance to address the broken economics of online retailing, says Christian Piller, co-founder of the logistics platform Pollen Returns. He sees a cultural malaise — US consumers “have been trained, partly because of Amazon . . . [to] just buy whatever we want”, knowing it can be sent back — and cites far lower return rates in countries such as Japan, which has 3 per cent returns against 30 per cent in the US.
The rush to ease so-called “return anxiety” has led to a revolution in the way consumers see clothes. So-called “bracketing” — ordering a size up and a size down before sending the ill-fitting items back — and “wardrobing”, where an item is returned after brief use, have become commonplace. The annual retail value of returned goods in the US is said to be approaching $1tn. Attempts to address this — by charging for returns or forcing customers to bring back products to a physical store — risk alienating shoppers.
E-commerce consultants talk up potential solutions such as virtual fitting rooms, in which consumers can supposedly try before they buy, and Google has deployed artificial intelligence to help fine-tune this process. My experiments with such technology, however, have not found the results realistic.
In the interim, returnless refunds have become an ever more tempting alternative for American companies. Last September, a goTRG survey of more than 500 US-based retailers found that almost 60 per cent were using “keep it” refunds to reduce waste and costs.
My own experience of the scheme ultimately exemplified its absurdity. As I went to donate the chinos to my local Salvation Army branch, I passed an enormous, half-empty Target. I would have been happy to drop them off there.
