The Cost of Free: How Brands Are Taking on the Cost of Free Shipping & Returns


Along with “Clearance” and “75% off”, this is one of online shoppers’ favorite phrases. Who doesn’t love getting something for free? Who hasn’t added a $5 trinket to an order to make sure they got free shipping or tried a product because the promise of free returns acted as a safety net?

The world of Amazon Prime and services like it have trained consumers to expect free shipping and free returns, and consumers will regularly choose brands that offer these conveniences over the ones that charge for them.

But while shipping these items around the world is “free” for buyers, there is a cost associated with it, and it isn’t small. This is especially true when considering returns. Let’s look at the cost journey for brands offering free shipping and returns.

Brands have a lot to lose when sales don’t stick, and with online returns averaging 25-30%, the costs add up quickly. With the astronomical growth in ecommerce in 2020, the associated rate of returns grew 70% year over year according to a study by Navar.

When you look closer, the numbers don’t seem to get better. According to a study by the National Retail Federation, retailers incur $166 million in returns for every $1 billion sales. Additionally, there is a loss of $10.30 attributed to return fraud for every $100 in returned merchandise.

Products are priced to cover not only the cost of the product itself, but the cost of overhead and processes that a company must execute to be able to deliver to consumers. For ecommerce; that will generally include shipping. As products are returned, not only is there an additional cost of return shipping cutting into profit, but the overhead incurred from managing the returned inventory.

The escalation of these costs has driven several major retailers to overhaul their returns process, opting to refund the customer and leave the product with them in lieu of paying to have the items returned, or charging the buyer to make a return. Both options can have negative implications for the brand.

According to the Wall Street Journal, companies such as Amazon, Target, and Walmart are using artificial intelligence to determine whether an item is worth having returned, or if it is in their best interest to offer the refund and allow the customer to keep the item. The type of item plays heavily on determining this cost, though a Walmart spokesperson also indicated that a customer’s purchase history may come into play on a case by case basis. If the company does not plan to resell the item, due to damage for instance, there is also a higher likelihood of a non return.

Particularly for larger products, such as furniture, exercise equipment, and outdoor equipment, the cost to retrieve and process a return is significant, and may even require specialized delivery services. While brands such as Walmart, Target, and Amazon have the resources to meet those demands, high numbers of returns can place undue stress on companies functioning in these industries. While some retailers have chosen to not offer free returns, this tactic may increases the risk of losing a sale to a competitor in today's competitive landscape. A recent study showed that 51% os US buyers avoid buying from online retailers that do not offer free returns.

How to Combat Ecommerce Returns

To compete in the market while decreasing the likelihood of a return, many brands have shifted their focus to creating a product experience that increases consumer confidence in the products they are shopping for and the selections they are making. More information at the time of purchase increases the likelihood the item is a perfect fit for the buyer's need, and more perfects fits mean less returns. A key element in these improved experiences are 3D product configurators, which provide the shopper with a high quality view of the product along with its features and options. Accurately representing dimensions, colors, and textures sets specific expectations for the consumer, and decreases the number of surprises received at delivery. Further, with the ability to view and interact with a product in 3D using a visual configurator, shoppers have a clearer picture of how the features they select impacts, enhances, or works with the product they are purchasing.

Retailers are also turning to augmented reality (AR) with greater frequency, investing in experiences that bring products to life for consumers through digital twins. In many cases, brands are able to leverage existing 3D assets from a product configurator or visualizer to complete the immersive buying experience.

The result of a shopping trip powered by 3D and AR? 81% of shoppers say they feel more confident in their purchase when shopping with AR and brands leveraging 3D and AR see up to 35% reductions in returns.

Escalating sales in ecommerce offer outstanding opportunities for brands of all sizes, but with this growth comes the threat of growing problems. Brands who are able to address these threats and successfully deliver both on customer satisfaction and sustainable business processes stand to gain considerably as more commerce moves online.

Find out more about how partnering with Dopple can have a major impact of your brand's return rate and your bottom line. Talk to a visual commerce expert today.