The Swedish SPA (specialty retailer of private label apparel) fashion brand H&M reduced the exchange and return period for goods sold in domestic stores from the previous 30 days to 15 days last month. Global SPA brands such as Uniqlo, Zara, and H&M have implemented a policy of accepting exchanges and returns within a month. The 'generous' consumer policy of SPA brands, which quickly produce trendy clothing, frequently showcase new products, allow customers to freely try on clothes in-store, and ease the return and exchange process, has been evaluated as supporting the growth of related corporations.
However, as online shopping has risen recently, the return rate has increased, and the burden of inventory and waste has grown, leading to a trend of strengthening return policies. In February of this year, H&M changed its policy for its online customers in the UK, increasing the return fee from £1.99 (about 3,759 won) for non-members to £2.95 (about 5,572 won) for all purchasing customers. However, returns made directly in-store are free. The company noted it is an effort to minimize returns. The Spanish SPA brand Zara also withdrew its online free return policy from 2022, making consumers bear a cost of 3,000 won per return.
◇ Global retail industry tries to curb returns... $1.24 trillion worth of goods returned in the U.S.
According to related industries on the 21st, the shopping method of ordering the same item in various sizes and colors online and returning the unused products, known as 'bracketing,' has now become a common shopping behavior. A survey conducted in 2022 found that 63% of American consumers reported they engage in bracketing.
As a result, return rates are also on the rise. The National Retail Federation (NRF) estimated that 17% of goods in the U.S. retail market were returned last year. In monetary terms, this is approximately $890 billion (about 1.24 trillion won).
According to the market research firm eMarketer, the return rate in U.S. e-commerce is about 20%, more than double the return rate in offline stores (8-10%). Particularly for clothing items, where it is difficult to confirm colors or sizes during the purchasing process, the return rate exceeds 40%. In South Korea, the average return rate in fashion e-commerce is also reported to be around 30%.
Some analyses suggest that the 'wardrobing' shopping behavior contributes to the increased return rate among some consumers. Wardrobing refers to the shopping behavior of using purchased products one or two times before returning them, much like taking clothes out of a wardrobe. These individuals are exploiting the generous return policies of retailers, and it is suggested that social media may encourage this behavior.
Coupang discontinued its 'no questions asked returns' policy, which was provided unconditionally to paid (Wow) membership members in 2022, in part to curb some wardrobing behaviors. However, it seems they have not completely eliminated this issue. In March, a university student posted on an online community, boasting about returning items to Coupang after using them for a day to a week, which led to public criticism.
◇ Amazon and Warby Parker end try-on services due to return handling burdens
The return handling (reverse logistics) expenses for e-commerce companies are reported to reach 20% to 60% of the product cost. This is because it involves not just collecting the items, but also checking for any damages on the returned products, repackaging, and reselling them. This leads to losses in terms of profitability and sustainability. This is also the reason why Amazon and Walmart are implementing 'return-free refund services.'
Given the situation, try-on services operated from a customer service perspective are also gradually declining. Amazon ended its 'Try Before You Buy' (TBYB) service, which had been operating for Amazon Prime members since 2017, in January of this year.
Online eyewear retailer Warby Parker also decided to discontinue its try-on program by the end of this year. Launched in 2010, Warby Parker grew by offering a program that allowed customers to try on 5 pairs of glasses at home for 5 days before making a purchase for free. However, it has now decided to support customers' shopping through offline stores and digital virtual experiences. AAG Consulting, which specializes in store operations, estimates that if Warby Parker discontinues this service, it will save approximately $100 million (about 129.9 billion won) annually.
◇ 'The customer is king' in South Korean retail industry is still prevalent
The return issue is also a concern for the domestic retail industry. The average return rate for home shopping is in the 10% range. In e-commerce, it is reported that 20% to 30% of total orders are returned. Given that the total delivery volume in South Korea last year was 5.157 billion, even conservatively, it means that over 500 million items are returned annually.
However, domestic retailers are passive in limiting returns. The free return service is a key strategy to attract customers, and the perception that 'the customer is king' is still strong in Korea. Naver, which has emerged as a strong player in e-commerce alongside Coupang, has implemented a free return and exchange policy after rebranding its 'Naver Delivery Guarantee' into 'Naver Delivery' in March this year. The company stated that the transaction volume on Naver Shopping increased by about 20% after the policy was implemented.
The home shopping industry, where the 'try it before you buy it' purchasing method has taken root, is also hesitant to restrict returns. An industry insider stated, 'It is virtually impossible to abolish the free return and exchange policy that has been provided for decades, especially as the number of home shopping users is already declining,' adding, 'We are selling off the inventory created by returns on online malls.'