, Retail
Fourteen parcels came back on Tuesday. They are stacked behind the packing bench because nobody's job is to open them, and every day they sit there is a day the stock inside cannot be sold to anyone else.
Returns are not an exception to your business. At any meaningful volume, they are a department: they have a rate, a cost per unit, a labour requirement and a recovery value. Most small retailers account for them as a reduction in sales and nothing else, which hides the expensive part.
The legal floor, and what it costs you
Two sets of rules apply, and they are commonly confused.
The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 cover distance selling. A consumer has 14 days from receiving the goods to cancel, for any reason or none, and a further 14 days to send them back. You must refund within 14 days of getting the goods back or of the customer showing they have sent them, and the refund includes the basic outbound delivery charge, though not the extra cost if they chose next day over standard. You can deduct for any reduction in value caused by handling beyond what would be reasonable in a shop, but only if you told them so beforehand. Some goods are excluded, including bespoke or personalised items, sealed goods unsealed where hygiene applies, and perishables.
The Consumer Rights Act 2015 covers faulty goods, in any channel. Goods must be of satisfactory quality, fit for purpose and as described. There is a 30-day short-term right to reject for a full refund, then a right to repair or replacement, and then a price reduction or final rejection. This has nothing to do with the 14-day cancellation window and is not limited by it.
You can be more generous than either. You cannot be less.
Return rates are a property of the category
Rates vary enormously and mostly for reasons outside your control. Clothing and footwear run high because sizing is a guess made at home. Anything where fit, colour or scale matters runs high. Consumables, spares and known-brand replenishment run low. Bulky items run low because sending them back is a nuisance.
That matters when you change range. Moving into apparel from hardware is not a merchandising decision, it is an operational one, and it arrives with a returns process you did not previously need. Before you range a new category, find out what the rate is likely to be and price it in.
Within a category, the things that move your own rate are duller than most advice suggests: accurate photography, real measurements rather than S, M and L, explicit material and weight, and a size guide that reflects your actual stock rather than the manufacturer's aspiration. Returns caused by the customer being surprised are the ones you can remove.
What handling one actually costs
Add it up per parcel.
- Inbound carriage, if you pay it.
- Opening, inspecting, testing where relevant.
- Repacking to sellable condition, including new packaging if the original was destroyed.
- Restocking and putting away.
- Processing the refund and the customer contact around it.
- The payment processing on the original sale, which you often do not get back.
- The margin on the sale, gone.
For most small operations it lands somewhere between £4 and £9 per return before the value of any damage. Against a £30 order at 45% margin, two returns wipe out the profit from a third and fourth sale. That is the number to put in front of anyone arguing for free returns as a marketing policy.
Then decide what the goods are worth on the way back in. Grade them honestly. A grade goes straight back into the main stock pool at full price. B grade, meaning opened, repackaged or cosmetically imperfect, goes to an outlet channel, a marketplace or a clearance shelf at a price that moves it. Anything else is scrap, and the discipline is to decide that on the day rather than to build a second dead stock pile out of returns nobody graded.
The policy that wins customers and loses money
Free returns and long windows genuinely do increase conversion. They also genuinely do increase the return rate, and both effects are real at the same time. The question is which is larger for your category and your basket size.
Some rules of thumb that survive contact with the numbers:
- Free returns are usually worth it where margin is high, basket is large, and the alternative is losing the sale to a competitor who offers them.
- Paid returns are usually fine where you are the specialist and there is nowhere obvious to go instead.
- Extended windows past the statutory 14 days cost little in low-return categories and a lot in high-return ones, because the goods come back out of season.
Serial returners are a small proportion of customers and a disproportionate share of the cost. You are entitled to look at the data, and you are entitled to decline future business from an individual, as long as you are not discriminating on a protected characteristic under the Equality Act 2010 and you are handling the personal data lawfully. Most retailers who look at this find a handful of accounts returning the majority of what they order, and a quiet conversation solves it.
Measure it like a category
Report returns weekly, as a rate by category and by line, and with a cost attached. A single product returning at three times the category average is a product with a description problem, a sizing problem or a quality problem, and all three are fixable. A category returning at twice what you assumed when you ranged it is a pricing decision you now need to revisit.
Where this shows up in the game
E-commerce is one of the five business types in Business Baron's free game, so you can sell online without paying anything. Every trade is simulated as that trade, and a decision about policy rarely moves only one number. A policy that pleases customers and a policy that makes money often pull in different directions.