Increased restrictions on product returns by major global retailers, including Amazon, could reshape consumer and business dynamics, and spell good news for some local enterprises. The controversial policy changes are expected to cause deepening customer dissatisfaction, and reduced spend with the global retailers which could potentially drive some consumers towards local businesses if they are more accessible, competitive, and can position themselves as customer-centric.
Returns have doubled since the global COVID-19 pandemic.
The last two quarters of 2024 saw major retailers taking unprecedented steps to tighten their return policies to address massive, and unsustainable losses from product returns.
The latest estimate is that consumers in the United States returned 16.9 per cent of items that they purchased, valued at over US$890 billion, last year alone. This was more than double the percentage of goods returned in 2019, and has now been described as being at crisis level for some companies. Walmart, the world’s largest retailer with annual revenue of over US$640 billion, does not publicly disclose losses from returns.
However, some analysts have suggested that the company’s return rate could be as high as 10 per cent of its total sales. For context, Walmart spends less than 0.5 per cent of their sales on marketing activities, and their annual profit hovers at 3.0 per cent to 4.0 per cent of sales.
Retailers in the United Kingdom, Australia, Germany, France, China, India, and Canada have also revised return policies to defend their bottom line. In June 2024, UK based fast fashion retailer pretty little thing introduced a return fee on purchases, which caused major backlash from the public. By September the company CEO publicly apologised to customers, and modified the new policy to exclude loyalty customers who pay an annual membership fee.
Global giants Amazon and Target are leading efforts to discourage, frivolous and fraudulent returns. As of January 1, 2025, Amazon has adjusted its return fees for certain items. The company, which reported eight per cent profit on nearly US$600 billion in sales, has also taken the unprecedented step of cancelling the accounts of customers with high levels of product returns, banning them from access to all Amazon services in the process. Meanwhile, Target is imposing restrictions and reduced time frames for returns, and has reserved the right to refuse refunds where there is suspected fraud.
The vast losses associated with the logistical burden of facilitating returns have become a growing concern for retailers worldwide, and it is unlikely that we will see a complete reversal of this position.
Opportunity for small business
The upside for many local businesses is that they have an opportunity to present themselves as viable alternatives, as global giants deepen their commitment to defending their margins.
Here’s what businesses need to do:
Promote sustainability: Climate crisis is an existential threat for our region. This is an opportune time to highlight the environmental benefits of supporting local businesses, particularly reduced transportation and packaging waste, and lower carbon footprint;
Build stronger customer relationships: Implementing technology and processes that support personalised service, and address customer concerns promptly, may help businesses build trust and customer loyalty through positive experiences.
Enhance community initiatives: Deepening ties with the community could be an advantage for local small business, and a key differentiator. For example taking the strategic move to invest in the communities they serve, providing jobs to vulnerable groups, and create a positive net impact through their presence.
Promote local production: If businesses can source and produce local, it will build industry and increase the country’s GDP, as the world faces lower projected growth than in 2024. Behind the scenes production and human interest story-telling are not just marketing ploys, these are initiatives that build strong connection with customers. Also, the advantage in segments such as over fast fashion, and quick assemble furniture, is that local companies can give their customers the ability to experience the product quality first-hand, examine the quality of materials, the craftsmanship, and durability, which will build their confidence in the product, increase satisfaction with the purchase and reduce the likelihood of returns; and
Encourage try-before-you-buy: When it comes to apparel, try before you buy is a key selling point. Clothing and shoes has the highest return rate of all items sold online, mainly because of the wide variance in size and fit, misperceptions and misrepresentation in colours, fabrics, textures, because images rarely give the real picture. This creates an almost 50 per cent hit or miss for customers who buy apparel online.
This is the time for local companies to leverage the satisfaction assurance of seeing, touching and being able to try on items to ensure the proper fit.
Finally, this is also the time offer referral discounts, VIP memberships and high-value rewards that welcome new customers and incentivise continued patronage. The stricter return policies of large retailers open the unique window for our local businesses to compete by emphasising flexibility, quality, and personalised service.
2025 may be a pivotal year for companies with the vision and execution excellence to be more caring and create a superior customer experience, to increase customer spend and lifetime value.
One love!
Yaneek Page is the programme lead for Market Entry USA, and a certified trainer in [email protected]
This post was originally published on here
