Free return services soar in Korean online shopping market

[Graphics by Song Ji-yoon]

Free return services for online shopping are expanding in South Korea, allowing customers to return or exchange products without paying return shipping fees. While this trend increases convenience for customers, it also raises concerns about potential declines in profitability as competition among platform companies becomes fiercer.

Naver Corp. said on Sunday that it has been subsidizing the cost of the ‘Return Assurance Care’ service for sellers who use its logistics solution ‘Arrival Guarantee’ since the end of May 2024. This insurance-like service reimburses up to 7,000 won ($5.1) per return shipping fee for sellers on Naver’s Smart Store platform, promoting free returns by ensuring both consumers and sellers do not pay for return shipping.

Naver is not alone in strengthening free return services, with SSG.com recently launching a service that credits 3,000 won in SSG Money to Shinsegae Universe Club members for the return shipping costs of department store products. This initiative is likely due to the high return demand for high-value items that often require meticulous comparison. The benefit aims to increase member satisfaction and will be evaluated for potential permanent implementation based on its effectiveness, a company official said.

Free return policies are also a key factor in the popularity of Chinese e-commerce platforms expanding their Korean market share. AliExpress covers the return shipping costs for items tagged with ‘free return,’ while Temu offers free returns for every customer’s first order. These companies often prefer to issue refunds without retrieving low-cost items due to the high logistics costs vis-a- vis the product prices.

Other Korean platforms, such as TMON, offer free return services for customers who are dissatisfied with their fresh food purchases, intensifying the competition in waiving return shipping fees. These strategies are largely seen as a response to Coupang, which provides unlimited free shipping and returns to its WOW membership customers for a monthly fee of 7,890 won. The WOW membership is primarily valued for its shipping benefits even as it includes other services such as free video streaming. Many Coupang customers order multiple items in different colors and sizes to compare once they receive items and take advantage of free returns to keep only what they need, a practice that would otherwise cost 5,000 won per return.

This trend enhances the appeal of online shopping by allowing customers to shop as meticulously as they would in physical stores without the hassle of returning items in person. But some industry experts warn that this aggressive competition could deteriorate profit margins for Korean e-commerce businesses, which was underscored by Amazon’s recent announcement to scale back its free return services.