The impact of returns policies on profitability: A fashion e-commerce case

Research on returns policies is scarce and inconclusive. This study is a first attempt to empirically analyze and describe the effects of returns policies on consumer behavior and the moderating effects of the policies on profitability. The method involves analyzing the transactional data of a Swedish online fashion retailer. The results of the regression analyses show that with a lenient returns policy, repeat customers generate a significantly higher contribution per order, while returners and customers who enjoy free returns generate a significantly lower contribution per order. In addition, returners and repeat customers generate a significantly higher total contribution, while customers who enjoy free returns generate a significantly lower total contribution. Hence, returns policies that are free of charge do not necessarily benefit retailers in terms of long-term profitability. From a managerial perspective, the results provide guidance on how to address the recent changes in European consumer legislation.