“The Ghost Economy” of Free Shipping and Free Returns

By: Daniella Soloway

E-commerce is a booming industry, but there’s an entire economy behind its existence that is costing billions of dollars for retailers. Body Labs released research that found U.S. consumers spend $250 billion annually on apparel, and out of all clothing purchased online, 23% is returned (with an additional 22% of in-store purchases being returned).

Whether it is due to defective items, wrong sizes, return fraud or buyer’s remorse, items being returned have created a “ghost economy,” according to IHL Group, a research firm serving both retail and hospitality sectors. Contrary to the basic assumption, the actual returns aren’t what’s breaking the bank, but rather it’s the costs of having broken boxes, cleaning items and handling.

Analysts and sources alike believe that these costs will not be sustainable and additional measures should be taken to relieve the burden of returns.