Apr 14, 2023 - Economy

Amazon's new fee calls into question the era of free online returns

Illustration of a beat-up looking Amazon box, with their logo upside down in a frown

Illustration: Sarah Grillo/Axios

The era of free online returns is starting to show cracks.

Why it matters: The pandemic-induced online shopping bonanza forced retailers to adopt lenient return policies that cost them dearly. Now free returns are something consumers may have to learn to live without.

Driving the news: Amazon, once the king of free returns, is testing the waters of charging for them.

  • It's not universal — not yet anyway — but if you choose to drop off an Amazon-purchased item at a UPS store, you could be charged a $1 fee.

Threat level: Consumers should expect more retailers to give up on free online returns because of how much stores lose on those products, Babson College professor and retail expert Lauren Beitelspacher tells Axios.

  • Returns accounted for $816 billion in lost sales, or 17% of total sales in 2022, up from 11% in 2020, according to the National Retail Federation.
  • “When you buy it online, it has to go back to the fulfillment center, back through the distribution center, back into inventory — and honestly the chance of it being resold are very small,” she says. "It’s not sustainable for retailers," Beitelspacher said.

Zoom in: It's not just Amazon: Other retailers have also started deducting online return fees from refunds for items shipped back to stores, including JCPenney, Foot Locker and Dillard's.

  • Some, like Kohl's, have stopped covering return shipping costs.

Yes, but: The temptation to maintain a free returns policy is powerful because of its allure as a marketing tool.

  • Many stores still offer free returns for online purchases brought to a brick-and-mortar store.
  • Amazon itself continues to offer free returns at Whole Foods Market and Amazon Fresh stores, Amazon Hub Locker+ locations and Kohl’s stores nationwide.

What they're saying: "We offer convenient, easy returns to Amazon customers, with one or more options for label-free, box-free returns at no cost,” company spokesperson Steve Kelly, a company spokesperson, said.

  • Debrup Jana, a senior director and analyst with research and consulting firm Gartner, tells Axios that since Amazon's charge is "modest," consumers likely won't change their "overall buying behavior."

What we're watching: Whether Amazon's decision to start charging fees on some items returned through UPS locations signals further changes in their relationship.

  • Beitelspacher speculated that Amazon's fleet of delivery vehicles could begin accepting returns directly from consumers, much like U.S. Postal Service workers can accept mail with pre-applied postage.
  • "They could completely do away in partnering with UPS," she says.
  • Jana agreed that it's possible Amazon might gradually start reducing its reliance on UPS while building its own logistics carrier network.
  • UPS deferred a request for comment to Amazon.

The bottom line: Retailers are trying to balance their desire to keep customers happy with the need to preserve profits.

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