E-commerce orders may be harder to return this festive season

Direct-to-consumer companies as well as e-commerce platforms Flipkart and Amazon may set a higher bar for accepting returns than in previous festive seasons to maintain margins by eliminating the costs of reverse logistics, staffing and packaging, according to two executives aware of the matter.

Product returns tend to spike by as much as 30% in the last three months of the calendar year, when e-commerce companies typically run sales during major festivals such as Dussehra and Diwali compared to business-as-usual days, according to Shashwat Swaroop, co-founder of GoKwik-owned Return Prime, a returns and exchange optimisation platform.

Common ways to curb returns include shortening the return window, charging a return fee to customers who do so frequently, offering only store credit, and disallowing payments at the time of delivery, the executives said. Swaroop added that in some cases, sellers may choose to be lenient with loyal customers while restricting the option for others.

E-commerce companies, especially marketplaces, have tried to curb returns over the past few years. Last year, Myntra introduced a fee ranging from ₹199 to ₹299 for customers with a high rate of returns. However, with the rate of returns rising, they are scrutinising consumer behaviour more closely now than ever.

Amazon, Flipkart and Nykaa did not respond to queries sent by Mint seeking comment on the matter.

Growing problem

Product returns are becoming increasingly tedious for e-commerce companies to manage. Started as a feature to attract customers, it could cost Indian e-commerce companies $20-30 billion in revenue by 2025, according to estimates by Return Prime. E-commerce in India is expected to be worth $188 billion by 2025, according to Brand Equity India Foundation, which cited Grant Thornton estimates.

And even though e-commerce sales grew by 38% during the pandemic, the rate of returns doubled. There are more returns during the festive season, according to the founder of an online apparel company who did not want to be identified.

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“Attractive deals on online platforms have led to an increase in impulse shopping and hence higher chances of buying something you did not really like or need. In apparel, it’s also possible that customers bought something to be worn only for an event," the executive added.

The cost of reverse logistics can be pinching. Right from picking up the product, shipping it back to the warehouse, conducting quality checks, and eventually refunding the money, companies tend to lose out on margins, according to Satish Meena, an advisor at Datum Intelligence.

“Returns generally account for 10-12% of the entire product cost, leaving brands very little earnings. In some cases, brands may have to pay out of pocket to facilitate the return," Meena noted.

The biggest online purchases during the festive season are in the fashion category, followed by groceries and personal care, according to Datum Intelligence's 2024 festive sales report.

Also Read: Amazon sees jump in demand for premium clothing and beauty products

The highest number of returns are in fashion, which includes accessories, handbags, and footwear. Personal care and electronics can be returned only in exceptional cases of defect or damage during transit. The net sales value (NSV) of Nykaa’s fashion business accounted for 30% of its gross merchandise value (GMV) in the quarter ended June.

“The higher the ratio, the better, as it will indicate that brands are losing less money on each returned order," Datum Intelligence’s Meena said. While NSV includes discounts and cancellations, it could be a good metric to assess a company’s returns-to-earnings capacity.

Tough to implement

To be sure, consumer companies are not likely to implement aggressive strategies to curb returns but instead adopt a more gradual and silent approach.

“Returns and replacements are key value drivers for online companies. Many consumers opt for shopping online only if they have the option to return the order," Meena said, noting that any big policy change could have a direct impact on sales.

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Return Prime’s Swaroop said eliminating returns entirely leads to a drop in GMV of up to 50% and that almost 85% of shoppers remain loyal to companies that offer easy returns.

However, many companies are incorporating the cost associated with returns in their pricing. E-retailers including Nykaa and Myntra now charge a platform fee to customers to account for possible order returns.