The high cost of free returns

0:01Melissa, I knew I was coming on the podcast this week. And so naturally, I turned to my inner circle and I thought, wow, this is actually a great opportunity to ask them some questions about how they feel about returns and brands' different policies. And so I ran a poll with my inner circle and I was actually shocked at the results. And due to the results, I've actually decided to completely change my return policy.

0:31Welcome to the Modern Retail Podcast, a show about the ways the retail industry is changing and modernizing. I'm Melissa Daniels. One of the most ubiquitous and annoying things about shopping today is having to make a return. Lately, I've had the good, the bad, and the ugly From getting an instant refund online to having to email customer service about a dozen times to return an item I didn't even order. But every brand seems to do it differently. So every time I have to make a return, I never know what I'm getting into. We can thank Amazon for getting us all trained on free returns. But those days are gone.

1:10Most companies don't operate on those margins. Now you can expect to pay return fees. They might be$3 or$7 or even up to$45. And then you have to figure out how to get the item back to the store. Do you mail it or drop it off or schedule a time to get it picked up? Do you get a refund or store credit? Today, we're diving into why returns have gotten so complicated and some of the ways that brands are looking to make it easier. Because as annoying as it is to return something as a shopper, it's a constant logistical and financial struggle for brands. And so if you're seeing more companies charge for returns, they're not trying to rip their customers off.

1:51It's because they're trying to cover their own costs. It's covering my warehouse fees. It's covering, you know, the cost to get the product actually shipped back to me. Oftentimes, you know, with children's brands, just like with Motet, our margins are a lot smaller than with other categories like women's or home. And so if I was to include return fees or shipping fees right off the bat for all my customers, I mean, that could be 30 % of retail cost of an item. And so it just didn't make sense initially financially to have a return policy that was just free across the board for customers. That was Samantha Gold.

2:29She runs Motet, a children and women's sleepwear brand. She's also a consultant to female entrepreneurs in the product startup space. Her return rate is about 4 % since adding women's clothes last fall. She has been charging a$7 return fee that's deducted out of a customer's refund. And that's typical for this industry. The National Retail Federation and the company Happy Returns did a big study on this last fall. It showed 72 % of merchants charged restocking fees in 2025, up from 66 % the year before. But customers do not like this. About 82 % of consumers say free returns are an important consideration when shopping online.

3:12They said as much to Samantha when she pulled Motet's Inner Circle, a loyal group of about 5 ,000 customers. They weigh in on pretty much every decision that I make as a business owner from, you know, print designs or upcoming product releases, what they want to see from me, and also brand policies like returns. So Melissa, I knew I was coming on the podcast this week. And so naturally I turned to my inner circle and I thought, wow, this is actually a great opportunity to ask them some questions about how they feel about returns and brands, different policies. And so I ran a poll with my inner circle and I was actually shocked at the results.

3:4790 % of my customers said that if a brand charges a return shipping fee or a return fee, like a restocking fee, they will not buy from that brand again. And so that was such an eye opener for me. You know, customer acquisition costs, especially D2C, are pretty much the highest costs for any retail brand. And so I'd rather lose that$7 than that customer for life. Right. And so ahead of this podcast, I decided to completely change my return policy. I'm not sure if this is the first time someone's changed a policy after a conversation with a modern retail podcast, but I think it's definitely the first time we've talked about it on the show, which is delightfully meta for us and all the brand geeks out there who are listening.

4:35I love this idea, though, that you really hit a pot. And that's that returns aren't just a transaction. It's part of your customer experience, right? Because if I needed a new size in something and I exchanged it and it cost me money, I already had to print out that shipping label, drive to the post office, all these things. You're leaving me as a customer with an impression of your brand that isn't necessarily like, oh, well, they did everything they could to serve me. Definitely. And I think also with like Amazon gaining such prevalence, I mean, I'm ordering from Amazon every day and people expect that same experience that they do when they purchase online from brands, right?

5:14I want to be able to get something. I want to be able to order multiple sizes so I can try it on. I want to be able to return the size that doesn't fit me. That's just my preferences as a consumer. And I want to be able to go to UPS and show them a code, scan the code and easily submit the return. And then right off the bat, the refund is issued. And the truth was, I was not providing that experience for my customers. I was having to weigh up the pros and cons of our margins and protecting the margins and protecting some of those costs. But as I mentioned, I think for me, keeping that customer for life and customer loyalty and those repeat purchases outweighs some of those costs that I have to eat as a business when I cover those return shipping fees.

5:55So moving forward, Motet won't be charging for returns. Instead, Samantha plans to undo her$75 free shipping threshold and charge a$7 shipping fee on all orders. And she's going to start using a return vendor called Loop that walks the customer through the return process and encourages exchanges or offers store credit instead of a refund. One of the great things about return technology like Loop is that it offers customers things like the opportunity to make an exchange, as you mentioned, the opportunity to receive a store credit that might be like$10 more than the item that they bought. So it incentivizes them to keep the money with the store as opposed to get that refund.

6:39And again, it provides a seamless experience where customers get that code. They can go to UPS, scan it right there and get issued that refund. And it's also really more efficient for the brand too, because everything happens automatically on the backend versus up until this point, my policy was my warehouse would actually have to, they would go in, they would mention me within the order and they would say, this one looks like it needs to be rebagged, but came in in good condition. And so that would be the time that they had to spend doing that. And then also the time that I would have to take to actually go in, refund the item minus the return chipping fee and actually process it.

7:16If you total all of that up, there's significant time that goes into that. Granted, my return rates are only 4%, so it's not too bad. But as we think about scaling and growing, those are just admin tasks that personally, I don't really want to spend my time doing. Everything we've talked about so far is on the direct-to-consumer side of Motet's business. But about 80 % of their sales actually come from marketplaces for stores like Bloomingdale's and Masonette. Selling on marketplaces means having to adhere to their return policies. They might not charge any return fees and give the customer an instant refund, even before the item makes its way back to Motet's warehouse.

7:56It also means navigating a whole new back end. Samantha uses an e-commerce service called miracle, but that has its own learning curve to figure out. It's a beast. Actually, let me start with miracle is a beast. Miracle takes so much time to implement. I mean, I'm talking 90 days minimum of going back and forth with their team. They all have specific product templates, guidelines, you know, photography dimensions that you have to adhere to in order to even get listed on their site. And so that was definitely the biggest hurdle that I had to overcome was finding a technical resource on my team that could help me with that.

8:41And luckily now I have found a miracle expert who supports me with all of this, but to try to do it internally with a small team who's never done it before is the biggest headache truly. And, um, you know, I did try to have someone on my team do it initially with Bloomingdale's and there was, you know, rejected report after rejected report. And, um, you know, I'm still kind of paying for, uh, some of those mistakes. I received last week actually four, uh, invoices in the mail from UPS, uh, because customers from Bloomingdale's had made returns and my employee, um, hadn't correctly imported the dimensions of my packages and the weight of the items.

9:27And so it was pulling incorrectly. And therefore, the shipping label cost was for a much smaller item than the package itself. And so UPS was auditing those deliveries and returns and then charging me significant fees for each time it was incorrect. And so I think the lesson there is just the level of attention to detail, like slow down, make sure that you are dotting your I's, crossing your T's. I can be someone who goes so fast. And I really don't love the detail, to be honest, like all of these, you know, spreadsheets and the specifics. And so to be honest, like I take ownership of, I should have done a better job of checking the work of my team member.

10:13I just assumed that they were on top of it. But again, to their credit, this was the first time they were doing this as well. I'm glad that we were able to catch it before it happened more, but definitely a learning there. I'm curious, what other kind of conversations have you had out of that inner circle pull? Any other fun learnings on how your customers feel about returns? I think the biggest thing is the seamless experience for the customer. I had so many comments from people saying they hated having to print labels. else. You know, I think you and I were joking that, you know, in our early twenties, we didn't even have printers, right?

10:50Like I literally would go to the library to print something and, or you run out of ink, right? Or you run out of paper. Like it can be such a, you don't have tape, right? To tape it up. I mean, UPS is now charging to tape the item. And so. Wait, really? Yeah. Yeah. They are literally, they'll charge you like$3 to tape up a package. Oh man. Yeah. And so making sure that you're providing like a seamless experience for the customer, I think is just super important. And again, like not charging those fees, making it easy for them to do business with you. You know, like I said, I mean, I'm, I do this as a consumer.

11:29I order two sizes. I return the one that doesn't fit, right? Like that's just how consumers want to, you know, make purchases today. And so we need to be putting them at the forefront of, you know, these policies and considerations as we make changes as a brand. As of this recording, Samantha's new return policy was still getting set up, so we'll have to wait and see how her inner circle feels about it. In apparel, there's things brands can do to help prevent returns, like sizing charts and clear product descriptions. Samantha has even adjusted sizes based on customer feedback. But this process can look very different when the product is bigger and more expensive, like appliances or furniture or even mattresses.

12:14Here's this two,$3 ,000 bed. I've never touched it. I've never laid on it. I've never, you know, whatever. How am I going to give my money to this company buying something sight unseen?

12:32Last week, I returned a pair of glasses about three hours after they were delivered. I knew immediately they weren't going to fit, So I printed out the return label and dropped it in the post office drop box. I'm still waiting on the refund, but all told, it was pretty easy. But have you ever had to return a piece of furniture or something like a swimming pool? It's a lot harder. We were going to get a swimming pool last year, and we were just going to get like a four-foot pool or whatever. And, you know, we got it, and it actually had a recall on it right afterwards. This is Aaron Schultz. He's the chief growth officer at Mattress Brand Naturepedic.

13:09When I say it took five, five attempts from Walmart and third-party carriers to come and pick up that pool, I would never buy a large item myself from Walmart ever again because it was such a terrible experience. And, you know, it's just like, you know, again, there's nothing against Walmart. Everybody, you know, has probably shopped at a Walmart at some point in time. But as far as like large bulk items that I know, like maybe we're not going to like, maybe we're whatever. It took almost two months before they finally picked up that pool from our driveway to initiate this return. And I, you know, again, I've lived it and I don't want my customers to go through that as well.

13:50There's actually a huge opportunity to optimize your customer experience when you're processing a return. Is it actually truly seamless or are you asking the customer to jump through a lot of hoops? Even worse, do they have to send you dozens of emails to get someone to respond? I wanted to talk to Aaron about this because at Naturepedic, the company's been able to keep returns to about 5%, way less than the industry average of around 12%. That's partly because they have a few ways they work with customers to troubleshoot issues before they officially start a return. Naturepedic offers a 100-night guarantee and a layer swap program if the customer needs to adjust the comfort level.

14:33Yeah, no, you know, it's something that we do differently than just about the rest of the industry with our layer swap program specifically is, you know, especially buying a mattress sight unseen, it does help with our conversion rate with our consumers. You know, if they've never touched it, laid on it, felt it, what have you, gives them a little bit more of a comfort level of like, okay, I buy this mattress, I get it into my house. If I don't perfectly like it, the company will swap out the comfort layers for me for the next, you know, 100 nights and until it gets absolutely perfect and I absolutely love it.

15:07What has running that program sort of taught you about customer experience? Because I imagine it's kind of a high touch kind of experience that a customer has to have when they're saying, hey, this part doesn't work for me. What else do you have? There's kind of a real back and forth there that has to happen. but in the end, that's keeping the item from being returned. Yeah. And, you know, honestly, it's twofold for the way that we have this program is not only are we making it easier to consumer to swap out the, you know, the overall firmness level of their mattresses, but I know how I like to operate only when I want to.

15:40If I go into a store today, I'll choose self-checkout all day long. I don't like to talk to people. It's kind of, I don't know. But, you know, when it comes to, when I need, when I have an issue, I want to talk to a person. And I think our customer service is second to none in the industry. And it allows the consumer to feel seen, feel heard. And we hear you. We're going to take care of it right away. And we will get your new layer out as soon as physically possible. And sometimes it's only a matter of days before they get this new layer in. And then they're back to, you know, sleeping how they did before they bought a brand new mattress.

16:15And is that something they can kind of put in themselves and figure out, or do you have sort of someone come do it? No, it's very simple. I mean, putting together one of our EOS mattresses maybe takes a half an hour in total. Swapping a layer out, you know, the whole, we have a very nice heavy brass zipper. It's literally as difficult as, you know, taking the zipper down the side of the mattress. You pull out the old layer, you put the new one in, you zip it right back up. It takes less than five minutes. You know, when there is a situation where someone doesn't want their mattress anymore, I imagine there's all sorts of logistics that you and your team have figured out.

16:51Walk me through what that process looks like and how the pickup or return works. Yeah, generally, you know, and that's the thing about a return. A return is actually a good thing for a company. It's an opportunity to allow you to show the customer that you, you know, care and you're not trying to give them a hassle on it. And they will recommend you to other people. Like it didn't work for me, but, you know, it might work for you. And the faster we can get that mattress out of there and also to an ethical place. And what I mean by that is, you know, our customers, especially being a certified organic company, our customers are, you know, they're aware of stuffing and ending up in a landfill.

17:31So they don't want that to happen. We ourselves donate a lot of mattresses to homeless charities, foster care charities and stuff like that that are trying to help out children get a fresh start somewhere. If none of that is available in that particular area, which most of the time it generally is, we use Go Load Up. And a lot of times they will – again, if it's in that area, they'll send it to mattress recycling facilities. Worst case scenario, if none of that is available in that particular area, we'll, you know, just unfortunately have to dispose of the mattress. And luckily, that's probably, you know, if I had a ballpark, it's probably like maybe only 10 or 15 percent of our overall mattresses end up in a landfill just because of, you know, location.

18:17Aaron and I also talked about what's next for Naturepedic and trying to stop returns before they start. It's something we're seeing brands constantly tweak. What kind of visuals or messaging can you give to a shopper to make sure they know exactly what they're buying, even if they can't see or smell or touch or sleep on it in person? You know, what we've started working on the last few years and even more so in this coming year is where are our friction points on our website? What are we not doing good enough to explain to customers? We're trying to create this, we'll call it a virtual showroom, this perception of here's this$2 ,000,$3 ,000 bed.

18:55I've never touched it. I've never laid on it. I've never, you know, whatever. How am I going to give my money to this company buying something sight unseen? And obviously that comes with the layer swap program, but it's really more of, you know, what everybody's body's different just because, uh, I, you know, like to sleep on a soft mattress does not mean that everybody likes to do that. So some people have a perception in their heads of, of like, Oh, I like to sleep normally on firm. It's like, well, once you finally get to lay on it, you realize you probably wanted something softer. So we're just trying to curate our content and our visual experience on our website to kind of paint that picture for the consumer.

19:31Like, this is actually what you're going to be getting. Is that right for you? And I think that ultimately is, you know, what allows, it's been driving our conversion rate, but also lowering our return rate specifically over that. And again, we made a big priority over it in the last few years and, you know, looking forward to the rest of 2026 and see what we have to do as far as those changes are concerned. Yeah, no, I love that. And thinking about returns and the possibility of returns as a pre-checkout problem, right? And as part of the pre-checkout consideration. I wanted to see if you could share anything about, you know, your team and how your team handles this.

20:11You know, I had had a conversation with you about the potential for a dedicated return specialist. I would love to hear more about those plans. So for this new role we're going to have next year. We're going to have this person who's specifically dedicated to only handling returns for mattresses. And again, answering any old questions, it might, you know, crop up, but also just facilitating the return that much easier. You know, I feel like it's probably, I feel very confident it's probably going to lower our return rate by at least a couple more percentage points overall of just having a dedicated person.

20:45Cause sometimes it does, it becomes too much and it's a little bit of a pass through and we're guilty of it just like any other mattress company, you know, but this person, that's only the only thing they're going to be doing day in and day out. And I think it's going to make a huge improvement for our customer experience. Whether it's a new software, a return specialist, or a different policy, expect to see brands tinkering more and more with the returns process. Some companies like Motet may still use free returns as a way to win over customers. And big corporate retailers may have a better ability to swallow the costs that come with them.

21:20Others might start to roll out more exchange programs like Naturepedic's Layer Swap or give you store credit. I had a brand recently offer me a 15 % refund and the chance to keep the item. I still returned it. For Aaron at Naturepedic, the biggest thing is that any returns process is as smooth and easy as possible. Even a customer who returns is still a customer and you want them to walk away with a good impression of your brand. Listen, if you don't like it, totally understand if we haven't answered everything you like, or maybe the answers we did give you aren't something that you want to hear, or you want to go and try something else out in the world, that is totally fine.

21:59Please, let's make this as easy as possible for you. We thank you for your patronage and your thought, and we're going to get it taken care of. And time and time and time again, we get so many customers that are like, wow, I'm so thankful that you did not give me a hassle on returning this thing because I've had such bad experiences with other companies. I'm going to tell my sister, my friend, whoever that, you know, I know they need a mattress. This one didn't work for me, but, you know, it's probably a good chance it's going to work for you. And I think that's why we're experiencing such rapid growth for us as a company.

22:31Samantha Gold from Motet told me she's personally followed up with customers who made returns to get their feedback. She'll ask what they like or didn't like about the product or what would have made them more likely to keep it. And then she'll give them a$20 gift card to thank them for their time. Because any customer interaction, even one that ends without a product in their hands, can be a learning opportunity. Returns doesn't have to be a negative. It can be an opportunity to get more customer insights, to continue to understand your customers' buying behaviors and their preferences, and to, you know, make that return into a future sale.

23:14Thank you for listening to this episode of the Modern Retail Podcast, a show by Digiday Media. If you haven't already, please subscribe and head to Apple Podcasts to leave us a review and a rating. If you want more from Modern Retail, you can find us at modernretail.co. You can find me, senior reporter Melissa Daniels, on LinkedIn and Blue Sky. And you can also subscribe to our LinkedIn newsletter at the Modern Retail profile. We'll see you next week. Thank you.