In retail, a product return is the process of a customer taking previously purchased merchandise back to the retailer, and in turn receiving a refund in the original form of payment. Go to any Large retail store in the world, there will always be return instructions below the product description. Today apparels are bought through all stores that are either exclusively online or a mix of online and offline.

But, it wasn't always like this…..

Before the 2010s, the internet fashion retail market in India was less than a 10 million dollar industry.There was less than 25% digital penetration and no established apparel brand operating online. There were no return policies and only very strict exchange policies. Customers' most prominent issue with shopping online was they couldn't try out the clothes and see how they fit.

Now imagine an initial situation in which a single online retailer was then to not only offer to exchange clothes but add another incentive- give cash back. The customers who order clothes from the convenience of their homes and try to fit, feel that they are getting a good deal. Word spread, and the online fashion industry became 85% of the total eCommerce market in India in less than a decade. The opportunity cost of not going to a physical store became less due to the elimination of risk with 'free returns' .

Seeing the success of the first store, in the spirit of no cash left on the table, competing online retailers followed suit. Most fashion aggregator companies now also had to move away from their only exchange model to a return model. Single-brand companies like H&M and Lifestyle now include return policies in their hybrid stores.

How is the return policy viable for the sellers?

For this, we should first go back to the late 1990s, which introduced a concept called 'fast fashion; It is the phenomenon that it takes only 15 days for a garment to go from the design stage to being sold in stores. For example, a store that generally got 25 new products in 1994 would get 500 new products by 2001. But online retailing now touched new heights in fast fashion by selling (say) 5000 new products!

Zara invited customers from around 93 markets by 2005. Zara generated 18 billion Euros annually. H&M , Forever21 came next in line, with Indian markets catching up in the next decade.

First brands to emulate this strategy in India were Nyka and Myntra (First exclusively fashion brands that offered B2B service around 2012). As of 2021 Nykaa’s IPO raised ₹5,352 crore (US$670 million) at a valuation of US$7.4 billion. Aggregator companies like Amazon, Flipkart and Snapdeal , entered the market in 2013 followed by a flood of companies like Ajio, LimeRoad and Jabong in the next 2 years.

As far as the inventory logistics go, the biggest hurdle was the *Bullwhip effect. They were dealt with by :

First, most small brands becoming a part of bigger retail conglomerates like Shein or Amazon, and storing unsold items in big warehouses becomes cheaper for the sellers in bulk; second, the profit margins on these clothes becoming so high that clearing inventory with discount sales to make way for new arrivals was more profitable than keeping old clothes on display.

According to a report by the World Resources Institute people bought 60% more clothes in 2018 than in 2013 but wore the clothes for half as long. So, although the retailer would have to incur this cost of extra inventory, it would be less than the benefit of the increase in the customers’ total buys. In general, returns end up being 30% at most, but the option to ‘opt-out' in the returns model makes rash buying feel less guilty for the customers. Exchange still implies that money is definitely leaving your hand.

For the consumer, the incentive to buy online is the convenience, cost, and choice they are offered, all resulting from a fiercely competitive, almost perfect market. And the incentive to the sellers is the seemingly ever-growing demand for new looks, making the Indian internet fashion industry a 30 billion dollar market by 2025!

* The Bullwhip effect is an occurrence detected by the supply chain where orders sent to the manufacturer and supplier create larger variance then the sales to the end customers (Ma,et al . 2019) Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies like excessive inventory investment, misguided capacity plans.

- Manya Pandey

FY BSc (22-25)