Free delivery and returns are unsustainable for many entrepreneurs, who are turning away from offering online shopping

As the fastest growing retail market in Europe and North America, e-commerce is seen by many as essential for business success. At Christmas in particular, 73% of UK consumers will buy gifts online – that amounted to £24.4bn in 2015.

For many small businesses, e-commerce has allowed them to explore new markets and enabled significant growth. But for some, online trading hasn’t been plain sailing.

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Earlier this year, research from Barclaycard revealed that six in 10 retailers were negatively affected by the growing number of people returning items after buying online. Online-only businesses were hit the hardest, with 31% saying that managing returns was affecting their profit margins. One in five businesses admitted to upping their prices to cover the cost of returns.

Unsustainable costs

The problem is such that some small businesses are actively turning away from online trading. According to Barclaycard’s research, more than a fifth (22%) of bricks and mortar retailers choose not to sell online due to concern about the costs of managing delivery and returns.

They include Dale and Kate Fletcher, who run independent shoe retailer Molemi, with shops in Chipping Campden and Stratford-upon-Avon. They originally embraced e-commerce, offering an online shop, free delivery and free returns. But it quickly turned into an expensive exercise. “More and more products were coming back,” says Dale. “When consumers click to order, they don’t see it as buying until it’s landed on their kitchen table and they can just send it back.”

The ease of online shopping has fundamentally changed customer behaviour. Barclaycard’s research found that 30% of shoppers deliberately over-purchase then return unwanted items. It’s a facility that affects their purchasing decisions – 58% said a retailer’s returns policy has an effect on their decision to make a purchase online – but not one that they want to pay for. Nearly half (47%) of those consumers asked wouldn’t order an item if they had to foot the bill for the return.

For the Fletchers, efforts to offset the growing costs of e-commerce was met with less than favourable reactions from customers. “Consumer expectations have gone through the roof ... because they have been getting it for free,” says Dale. “When I discussed with customers our move to reduce online losses by stopping free returns, the look on their faces says it all, they would not shop on a site that does not have this facility.”

Business doesn’t transplant from physical premises into digital without some change, ​differentiation and pain Gordon Fletcher

Molemi still has a website but ended its e-commerce operation entirely in February 2016. Dale says it made no difference to the performance of the company. In fact, their bricks and mortar business has gone from strength to strength, and they recently opened a second store, in Stratford-upon-Avon. Fletcher believes e-commerce is primarily a realm for bigger companies who “are subsidising their home delivery and online activity from their in-store operation,” where there are larger margins.

Liverpool-based Origym, which offers personal trainer courses, added an e-commerce function to their site for almost three months, paying an American company $2,000 (£1,600) to set up and $300 (£240) per month to manage. Customers were able to buy fitness courses through the website. But co-founder Luke Hughes says it quickly became poor value for money and wasn’t compatible with the personal service the business provides.

“I did not thoroughly consider at the time the impact of human interaction so it was a complete waste of money for my business as our customers have loads of questions,” Hughes says. He feels that e-commerce generally isn’t right for a sector that has a low number of sales, even if they are of high value.

“We do between 80-100 sales per month. Our net is around £1,200 per sale, so each is worth a lot,” he says. “My brother’s online tutoring company makes around 300 sales per day, but at £8 per sale he needs to make hundreds of sales for our every one, therefore the only way this can be managed is through e-commerce and automation. In our instance the cost of implementation against the difference it would make, [meant it was] definitely not viable.”

Prioritising physical interaction

A reluctance to trade online won’t necessarily spell doom for a business. According to PWC’s Total Retail 2016 report, physical shops still have a “position of strength” despite footfall slowing, as many consumers still want “a physical interaction” with a product. Margaret Morrison is experiencing firsthand that desire to buy in person at her confectionery shop The Chocolate Unicorn in Camden, north London.

Morrison’s own relationship with e-commerce has gone “full circle”. In 1999 she started online company Cyber Candy, selling sweets from around the world, but closed the company earlier this year. She hasn’t ventured back on to the web with The Chocolate Unicorn.

“It’s funny that we started out as an online company and now don’t have a web presence at all,” she says. Cyber Candy ended for various reasons but Morrison admits there was high demand for free shipping, despite the cost to her. She would consider returning to online selling in the future, but for now is enjoying providing a more personal service. “You’re a bit more in touch maybe, less ‘click a button and get it sent through’.”

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While a move away from online trading may seem counterintuitive Gordon Fletcher, retail expert at the University of Salford, says e-commerce isn’t as simple as just “bunging your shop online” and it may not be right for every business.

“It’s about finding out why [entrepreneurs] want to go online,” he says. “Is it just because everyone else is doing it? If it’s that then it’s pretty much doomed from the start.

“Once you unpick the need and the exact requirements you can go a long way [with online trading] without having to consume the whole lot in an unpleasant lump. Is it just social media engagement rather than full e-commerce, or is it e-commerce that could be done via eBay or an Amazon store.”

With the world of e-commerce constantly changing, any advice on harnessing the power of online selling can become outdated quickly and it can be a struggle for small businesses to keep up. Fletcher says the move should be carefully considered and a strategy carefully outlined.

“Business doesn’t directly transplant from that physical premises on the corner into the digital equivalent without some degree of change, differentiation and pain.”

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