Who pays for return shipping: the merchant or the customer?

The cost of reverse logistics is on the rise: The Reverse Logistics Association’s Returns Index showed a nearly 13% increase in their quarterly cost index from Q4 2023 to Q1 2024.

Driven by factors including carrier rate hikes (UPS and FedEx both bumped prices by an average of 6.9%), higher fuel and freight prices, and rising wages, the increase in return rates show no signs of reversing direction. And that leads to a conundrum for merchants who are accustomed to covering return shipping fees.

Just a few years ago, it was the status quo for merchants to offer free shipping and free returns—anything to keep their customers happy. But with higher return fees than ever before, merchants are tightening their return policies. Does it still make sense to offer free returns?

Sometimes. In this article, we’ll talk through the different situations when it makes sense to cover return shipping fees, and when to pass the cost on to your customers.

When to pay for return shipping

First, let’s look at the situations where you should cover returned item fees: namely, when you’re the one at fault.

For example:

• You sent the wrong productIf the shopper mistakenly received the wrong size, wrong color, or the wrong order altogether, the solution is simple: You make it up to them by providing fast, free shipping on the replacement item, and free return shipping on the item you’re asking them to return. As an alternative, you might even offer them a “returnless refund,” allowing them to keep the mistaken item as a bonus gift, which will save your brand on return charges if the item’s not likely to resell.
• The item is defective or brokenWhether the product got damaged during shipping or had a manufacturing error, the customer should be entitled to a warranty return. That means your brand is responsible for fixing or replacing the damaged item at no cost to the customer, including return shipping fees.
• The package didn’t arrive on timeCustomers often need items for special events, such as a dress to attend an upcoming wedding, for instance—and if the package doesn’t get there by the original delivery date, the shopper may have no use for the item. In these cases, it’s important to be proactive with real-time order tracking updates, giving your shopper the option to cancel their order if the shipment is delayed. However, if the order arrives after the promised date, you should offer your customer free return shipping if they decide not to keep the item.

It can also be helpful to offer free return shipping as an incentive for shoppers who might otherwise take their business elsewhere. Some situations where free return shipping can be beneficial include:

• Rewarding loyal customersIf shoppers are part of your VIP or rewards program, offering them free return shipping may be a valuable special perk to offer them in exchange for their continued loyalty. By providing benefits that show how much you value them, you’re likely to keep your retention rates high.
• A new customer special offerOn the flipside, shoppers who haven’t tried out your brand before may be hesitant if they’re not sure whether they’ll love the product. Offering a one-time free return shipping offer may give them peace of mind around moving forward with an initial purchase.
• Free returns with an exchangeEncourage shoppers to select an exchange, rather than a refund, by offering free return shipping only on exchanges. You’ll be able to retain revenue that you’d otherwise lose, and preserve a valuable customer relationship.

When to charge the shopper for return shipping

On the other hand, when should you ask customers to pay for return shipping fees? Most of the time, actually.

For many brands, free return shipping is no longer a default option: 20 to 25 percent more stores began charging for return shipping in 2024 than the previous year. Major brands including Amazon, Kohl’s, and J. Crew all charge return shipping fees for at least some forms of returns, though shoppers are still eligible for free in-store returns or items returned to specific drop-off centers.

Increasingly, shoppers are comfortable factoring return shipping fees into the cost of making a purchase: Over 63 percent of Loop merchants charge return fees today, with no negative impact to repeat purchase rates; up by 47 percent since the start of 2020. And 70 percent of shoppers agree that they’re willing to pay for a more convenient, premium return experience.

Options for delivering a great returns experience while protecting revenue include:

• Offset your return costsLoop’s Offset tool enables your brand to give shoppers control over their return experience, with an opt-in surcharge at the point of purchase for access to a free, frictionless return later. 
• Omnichannel returns optionsGive your customers access to the flexibility of omnichannel returns, allowing them to return items by mail for a surcharge, or to return them to one of your in-store locations for free. Customers can choose the most convenient method for them, and you’ll save on shipping costs either way.
• Returnless refundsSometimes, the math doesn’t work in favor of reverse logistics costs. If it would cost more to return an item than it’s worth to resell it, offer your shopper a “returnless refund,” in which they’re able to dispose of or recycle the item on their own, while still receiving a refund for the product.

By choosing the right returns management strategy for every use case, you’ll be able to protect your profit margins while delivering high customer satisfaction. Using a best-in-class operational platform like Loop can help, with customizable Workflows that help you select the right outcome for every type of product return, and tools like Offset and Point-of-Sale to ensure a seamless returns experience.

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