With their easy online return policies and low prices, H&M and its sister fast fashion firms encourage us to taste the new collections that quickly come and go.
Now though, with a returns charge, they’re changing their incentives.
Return Policies
Using MRI-related technology, researchers confirmed that the shopping experience is a combination of pleasure, analysis, and pain. The pleasure starts when a “fantastic” sweater activates our “feel good” brain region. Whether the pleasure continues depends at first on the brain’s cost-benefit response and then on how our insula–where we process pain and disgust–reacts to the price tag.
As a result, buying seven sweaters—-even knowing we will return six–activates a feel-good center of our brain.
And that is the problem.
The cost of easy online return policies is adding up for retailers. Assume, for example, we have a $100 sweater that costs H&M $20. When a customer returns that sweater, according to the BBC’s World Business Report, it cost H&M $10 to ship the item to the customer and $10 to ship it back. In addition, $20 for warehouse processing further shrinks their profit margins.
As a result, H&M has joined the other fast fashion retailers that charge for online returns. Except for Loyalty Members, the return shipping fee in the U.S. is $5.99 while for U.K. customers it’s 1.99 pounds. Whereas the law of demand says we buy more with a lower price, the returns charge elevates the cost. It encourages us to return fewer items.
You can see that clothing has a gob smacking 88 percent return rate!
Our Bottom Line: the Law of Demand
Our Bottom Line: the Law of DemandH&M just wanted to encourage us to buy more. However, relaxed online return policies have been costly for buyers, sellers, and the environment. On the demand side, returns take time while the supply side has escalating margins and perhaps inadequate inventory for subsequent orders. And, as for the environment, we have wasted packaging and delivery mileage.
But still, we are returning more:
At this point, as economists, we can return to a law of demand. With a returns charge, they’ve diminished the incentive to buy seven sweaters and return six.
My sources and more: Thanks to the BBC’s World Business Report daily podcast and this article for alerting me to the H&M return charge. Then, for even more about fast fashion, The Atlantic and Vox had a slew of fascinating facts. Also I discovered this “returns” website that had the most insight (if it is accurate). And finally, this past econlife looked at consumer neurology (and was the source of several of today’s sentences).
