Fast fashion is slowing down — for its own good

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Fast fashion has a problem: me. I have refused to shop in stores for years. I order everything online. And then I return four out of every five items I’ve bought.

But there are increasing signs retailers are cracking down on my sort of profligacy. In May, Zara introduced a £1.95 return fee for online orders. Boohoo brought in a £1.99 charge this month on its namesake brands (others remain free, enabling in-house comparisons).

The obvious reason for doing this is margins. Retailers don’t tend to spell out exactly how much returns cost them, but it’s often double the cost of picking and delivering a product, according to Iain Prince of KPMG. The advisory firm’s 2020 UK retail survey put the annual cost to the wider industry at £7bn.

My personal returns rate is an anomaly. But take the example of Next where 41 per cent of online orders were returned in February 2019.

That fell considerably during the first two years of Covid-19 in a pattern echoed across the industry. In February 2021, Next’s online returns rate was 22 per cent. The behaviour change helped profitability, not least at Asos and Boohoo. But not only has it proved temporary, returns rates have rebounded above pre-pandemic levels. Boohoo’s first quarter gross sales growth of 9 per cent turned to an 8 per cent decline in revenues once returns were taken into account. Asos’s mammoth profit warning in June was in part owing to the possible continuation of unwelcome returns trends.

Asos’s returns rates could fall again. Perhaps shoppers were caught off-guard by the rise in inflation at the end of its reporting period and returned what they could not afford. In theory, they should adjust their behaviour to buy less to start with.

But Boohoo’s move on fees suggests action to repair margins may be required anyway. Both Asos and Boohoo have taken hits from supply chain challenges. Boohoo estimated that higher freight and shipping charges knocked almost one-third off its adjusted earnings before interest, tax, depreciation and amortisation last year. Adjusted ebitda was down 28 per cent year-on-year. At Asos, gross margins for the three months to May were down more than 3 percentage points year on year.

Integral to the decision to introduce returns charges is the assumption that sales will fall. Yet even though a number of retailers have had charges for a number of years, it’s hard to work out how bad the damage will be.

That’s partly because each retailer is trying to achieve something different with their return fee. Uniqlo doesn’t want returns at all: online items can’t be returned to stores and even items bought in-store have to be returned to the same branch. The charge is a deterrent against overbuying.

Zara wants to drive physical footfall. Next has a similar aim: it processes roughly 80 per cent of all online returns through stores which works out cheaper and decreases the time it takes to get items back out for resale — but it also uses its £2.50 charge to drive subscriptions to its unlimited free delivery, free returns package, cost £20 a year. Boohoo will offer free returns as part of its Premier package.

Asos has played around with its returns policy over the years to make it harder to send things back. But it insists that free returns are an integral part of its offer.

Early analysis of social media responses by Barclays suggests that resistance may be misplaced. Barclays analysts found a muted Twitter response to the fees. Less than 1 per cent of tweets directed at Zara and Boohoo mentioned the charges in the weeks after they were introduced in the UK, they estimated, with sentiment towards the brands within historical average ranges — though for Boohoo it is still early days.

Online shopping is no longer the upstart industry in need of market share that it was even five years ago. The pandemic should have meant the concept is now mature, even if some of the brands aren’t.

That Boohoo — supposedly the younger, faster growing business — appears more willing to sacrifice sales to preserve margins than Asos is striking. Elevated freight and shipping costs should impose some rationality on retailers’ pursuit of volume. Unless Boohoo’s experiment is a disaster, Asos will probably eventually follow suit. And all the better that the changes should result in more sustainable shopping practices.

cat.rutterpooley@ft.com
@catrutterpooley