Amazon (AMZN) has built its e-commerce empire by making shopping affordable and secure. Didn’t like the frying pan you bought from Amazon? Don’t worry, you’ve got free returns.
Those days, however, are gone — Amazon charges a $1 fee for some returns, marking a marked shift from the company’s early days when the spirit was “grow at any cost.” Yahoo Finance spoke to five retail experts about this big change, and while they didn’t agree on much, they agreed on at least one thing — that this has been a long time coming. Eventually Amazon and retail in general will not be able to handle it anymore.
“I think the industry should accept the ground Amazon is walking on to return the sector to some semblance of economic sanity,” said Professor Mark Cohen, director of retail studies at Columbia Business School. “Nothing is free in this life, so free returns create a huge burden for retailers. They are finally moving in from a ‘hands-off’ standpoint… That kind of movement should be inevitable.”
The data on cost of revenue for retailers is pretty staggering. Case in point: In 2022, customers sent about 17% of the goods they purchased, worth $816 billion, According to data from the National Retail Federation.
“These revenues are a huge burden on retailers, not just as a logistical cost, but as a supply chain problem,” Cohen added. “Goods don’t go back to the same warehouse, and those goods usually also have to be resold as distressed product.”
So these no-return policies aren’t built to last, CEO Trade Metrics Jeff Sard Yahoo Finance.
“It was completely inevitable,” he said. “Free” has become the most expensive word in retail. Free shipping and free returns used to be great as customer acquisition tools, but now they should be seen as an investment in building a customer base. This investment needs to see some ROI at some point. The free returns provided a kind of safety net to make people feel at ease while shopping online – and it got the job done. The convenience of free returns has put the rate of return at an all time high, which is not sustainable.”
Consumers will react – the question is to what extent
Amazon’s higher return fees are likely to change consumer behavior in some ways — the question is in what way and to what extent. To be fair, changing how some consumers interact with Amazon, especially those who are prone to testing and returning products, is exactly what the company is hoping for.
“The whole idea is to change consumer behavior, albeit subtly,” said Carol Spekerman, President of Spekerman Retail. Fees apply when alternative locations, including Kohl’s or Whole Foods, are closer. Because of the policy’s specifics, Amazon may not attempt to reimburse return costs so much as to increase the likelihood that shoppers will make impulse purchases that benefit Amazon and its retail partners. Nominal fee It’s not enough to piss off shoppers and Amazon’s competitors might want even higher.”
Commentary group director Brian Numenville agrees that a fee of less than $2 likely won’t be enough to spark rebellion, especially since such fees only apply in specific situations, he says. However, there will be some discomfort, and the products that consumers actually buy may change over time as well.
“While it may be an inconvenience to some shoppers and many of them don’t like the extra fees, it’s not likely that these nominal return fees will cause an enormous amount of disruption in consumer behavior, perhaps far from changing as some shoppers return Amazon items to suit other options.” No fee,” Nominville said. “The biggest problem that I think can have a noticeable effect is”He often returned“A tag on some product pages, which can influence a shopper to avoid purchasing an item, and wonder why they return it so frequently. This can shift consumer behavior away from these items and lead to different purchase outcomes.”
Amazon’s new return fee is also geared toward a specific type of customer, according to John Talbot, a senior lecturer at Indiana University’s Kelley School of Business.
“I think this effort is aimed at consumers who are gaming the system,” he said. “By that I mean, they’re consistent, tested, and returnable… By doing this, Amazon is essentially taxing the behavior of a small portion of the total population, and is better able to serve those who legitimately obtain a product or service, and intend to use it more fully.”
For Columbia’s Cohen, it all comes down to determinism: “I think some customers are going to be put off a little bit, but I also think they’ve been waiting for this day… Amazon has quietly denied customers for years of being criminally involved or just playing with them. They have to start An interest in their core profitability, and this is a step in the right direction for them.”
“It’s hard to put the genie back in the bottle.”
In all likelihood, retailers across the board will likely use this as an opportunity to start charging more for proceeds.
“I think the industry will move in step with Amazon,” Cohen said. “I think the move will be slow, but other retailers will move in the direction Amazon is going, using Amazon as a shield.”
Increasing return fees will continue to be a delicate dance between companies and their customers.
“More retailers are trying to implement return fees, but everyone knows they have to tread lightly,” said Speicherman. “It’s hard to put the genie back in the bottle, and Amazon made it in the first place.”
The next phase of e-commerce is likely to look somewhat different, as the business model is in a state of flux.
“The lack of profitability in the e-commerce world is well known,” said Sward. “Returns are not the only factor in this lack of profitability, but they are a big part of it. The e-commerce business model is in the middle of an evolutionary process that seeks sustainable profitability.”
But there is one thing you can be sure of – sorry guys, the days of random free returns are over.
“The industry is moving away from this ‘anything goes, anytime’ philosophy that’s just a financial killer,” said Cohen. “I think this is the beginning of a set of changes that we will see as the industry develops economically.”
Ali Garfinkel Senior Technical Correspondent at Yahoo Finance. Follow her on Twitter at @employee and on linkedin.
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