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Fast fashion has a problem: Me. I refused to shop in stores for years. I ordered everything online. And then I return four of the five items I bought.
But there are growing signs that retailers are cracking down on my kind of misogyny. In May, Zara introduced a £1.95 return fee for online orders. Boohoo has this month charged £1.99 on its name brands (others remain free, enabling in-house comparisons).
The obvious reason for doing this is margin. Retailers don’t want to say exactly how much a return costs them, but it’s often double the cost of picking up and delivering a product, says KPMG’s Ian Prince. The consultancy firm’s 2020 UK Retail Survey puts annual spend at £7bn for the wider industry.
My personal rate of return is extraordinary. But take the next example where 41 percent of online orders were returned in February 2019.
That has fallen sharply in the first two years of Covid-19, which reverberated across the industry. In February 2021, the rate of ongoing online returns was 22%. A change in behavior has helped profitability, at least at Asos and Bhu. But it’s not only temporary, but return rates have risen above pre-pandemic levels. Buhu’s first-quarter overall sales growth turned from a 9 percent decline in revenue to an 8 percent decline after a one-time charge. Asos’ high profit warning in June was partly due to the possibility that unwanted return trends could continue.
Asos rates of return may fall again. It is likely that consumers will be unable to afford it as inflation spirals out of control at the end of the reporting period. In theory, they should adjust their behavior to buy less to begin with.
But Bohoo’s move on fees suggests action is needed to repair margins anyway. Both Asos and Boohoo have taken success from supply chain challenges. Buhu estimated that higher freight and shipping charges knocked about a third of its adjusted earnings after interest, taxes, last year’s depreciation and amortization and shipping costs. Adjusted ebitda fell to 28 percent year-on-year. At Asos, gross profit for the three months to May fell more than 3 percent year-on-year.
A key factor in the decision to introduce chargebacks is the assumption that sales will fall. However, although many retailers have had payments for a number of years, it is difficult to know how severe the damage will be.
This is partly because every retailer tries to achieve it. Something different Along with their refunds. Uniqlo does not require returns at all: online items cannot be returned to stores and even items purchased in-store must be returned to the same branch. The charge is to prevent over-buying.
Zara wants to drive a physical leg. It has a similar aim: it processes 80 per cent of all online returns in stores, which works cheaper and reduces the time it takes to return goods for resale – but uses its £2.50 fee to push subscriptions to Unlimited. Free delivery, free returns package, costs £20 per year. Bhuhu offers free returns as part of its Premier package.
Asos has played around with its return policy over the years to make it difficult to send things back. But he insists that free returns are an integral part of the offer.
Early analysis of social media responses by Barclays suggests the protest may be misplaced. Barclays analysts got a muted Twitter response to the charges. Less than 1 percent of tweets directed by Zara and Boohoo mentioned the charges in the weeks since they were introduced in the UK.
Online marketing is not the first industry in need of market share as it was five years ago. The pandemic should have meant the idea was now mature, even if some brands weren’t.
That Boohoo – a young and fast-growing business – seems more willing to sacrifice sales to protect margins than Asos is surprising. Higher freight and shipping costs should impose some rationality on retailers’ search for volume. Unless Boho’s experiment is a disaster, Asos may eventually follow suit. And it’s even better if the changes can lead to more sustainable shopping experiences.
cat.rutterpooley@ft.com
@catrutterpooley
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