Online retailers increasingly used relaxed return policies in the holiday season to wrest market share away from rivals, but they are now bracing for a potentially costly consequence – a heavy flow of unwanted gifts.
Once viewed as a giant headache and profit bruiser, online returns today increasingly are being embraced by e-retailers as part of their business model. Cyber sellers are starting to loosen their return policies as a way to encourage consumers to shop online in a relatively under-developed Canadian e-commerce market.
They feel the pressure to provide generous – or at least easier to understand – return policies as rivals ranging from discount titan Wal-Mart Canada Corp. to Canadian-based fashion seller eLuxe.ca and generalist Shop.ca tout free returns, the latter even allowing them up to a year later. "It's one of those things that is the cost of doing business," said Simon Rodrigue, general manager of Wal-Mart Canada's e-commerce division.
Online sellers are beginning to view their return policies as another marketing tool, a way to pump up business and get consumers comfortable with online shopping.
But they risk hurting their bottom line if they don't manage the online returns efficiently. "Returns are sometimes that ugly part of the business," said Rod Hart, general manager of e-commerce market development at Canada Post, which introduced in November new ways for online retailers to provide easy-to-use return labels to customers. "But online shoppers are saying: 'That's important to me.'"
U.S. holiday returns will surge 37 per cent over last year to $63-billion (U.S.), according to predictions compiled by Liquidity Services, which helps manage returned goods for retailers such as Wal-Mart. Industry observers expect similar trends in Canada.
Even so, most consumers view a clear return policy and "ease of making returns and exchanges" as among their priorities in choosing to shop online, a recent Canada Post survey showed. And 48 per cent of shoppers who experienced a generous returns policy will shop again at the site, researcher ComScore found.
E-commerce players are beginning to tap the potential silver lining of a relaxed return policy. Shop.ca launched six months ago with one of the boldest return policies in North America: free returns within 365 days of receiving an order. It wanted to make a statement and lure Canadian consumers, who are making online purchases across the border but can find it difficult to return products, said Drew Green, chief executive officer at Shop.ca.
"We wanted to go the extra mile," he said. "From a risk perspective, it's just part of our model. From a cost perspective, it really is part of our overall marketing spend."
The privately held firm enjoyed eight times more sales in its fourth quarter than in its previous quarter, Mr. Green said. Returns so far this month are also up, to between 6 and 10 per cent of sales – a 20- to 30-per-cent increase from 2012, he said. "Canadians are just not used to being able to return a product as easily as they are with us."
Wal-Mart's return rates are running at less than 10 per cent of sales – slightly up from a year ago – while holiday online sales more than tripled from a year earlier, Mr. Rodrigue said. Its return rates are moderated by the fact that it does not yet sell much apparel online – clothing return rates can be as high as 30 per cent of sales.
Wal-Mart customers have the choice of free online returns or returning purchases at stores.
Joanna Track, chief executive officer of eLuxe.ca, said one of the top questions she gets from friends and consumers is how they can return purchases.
She said it was important to roll out a free returns policy for her fashion selling site, whose return rate is about 20 to 25 per cent of sales. "I don't believe you can be in fashion and not offer free returns," she said. "I think it's just the price of entry."
"In order to get people to shop online you need to remove the hurdles."
While eLuxe suffers from lower margins in returned items that must be resold at a discount, much of that merchandise is sold at semi-annual warehouse sales which give the company a chance to meet its customers in person, she said.
At Wal-Mart, about half of returned online merchandise is re-stocked on Walmart.ca or sold to a liquidator; roughly 40 per cent is returned to suppliers and about 5 per cent is destroyed, a spokeswoman said.