Photo: European Parliament
It’s an old story in Europe: ham-fisted regulation stunting growth and innovation.This time it’s new legislation that could affect the e-commerce industry.
A proposed EU directive will change online return policies, which could end up hurting ecommerce startups.
The bill is not yet final, with many more steps before eventual passage in June, but here’s where it stands today:
- Customers would get 14 days, instead of 7 days currently in most European countries, to return goods, with a further 14 days to send them back. Crucially, the merchant would have to give customers a full refund even before receiving the goods to ensure they’re not damaged.
- For any order over 40 euros, the merchant would have to offer free returns.
- Merchants would have to offer shipping and free returns across all European countries.
The law would hammer e-commerce startups’ margins and raise prices.
In France, where the return delay is 7 days, returns are 10-15%. In Germany, they’re closer to 50%. This can have a huge effect on e-commerce, where net profit margins are usually low.
Patrick Robin, Founder and CEO of women-focused e-commerce site 24h00.fr and a vocal opponent of the directive, told us the average non-travel shopping cart in France is 40 to 50 euros, excluding travel. Meanwhile, return shipping and processing fees would work out to 10 euros.
Assuming gross margins of 40% and return rates closer to 50%, the costs would work out to 5 euros per order on average, or a 25% hit on gross margins.
Can some retailers afford to pay for returns? Of course, Zappos built its business on it.
But not every company is Zappos. Smaller and mid sized companies will be hammered.
And really, not every company should be FORCED to be Zappos by the government.
The French Ministry of Industry did not respond to emails and calls for comment. A spokesman for the European Commission stressed that the law is not yet final and could change.