A hammer blow for online

Trading internationally is an attraction for many online retailers but launching overseas is still a big step to take – and it is one that may be taken out of companies’ hands when the EU Consumer Rights Directive (CRD) comes into force.

The new regulation – expected to be given the green light at the end of the month – in its current form gives EU consumers the right to demand that any retailer trading within a member country sell to them.

That has set alarm bells ringing with leading etailers. “It’s absolute madness,” says Steve Robinson, chief executive of online fashion retailer M and M Direct. “It’s not economical for businesses to ship across Europe. It’s not creating a level playing field.”

And that is not the only controversial clause within the CRD. The legislation also extends the time a customer has to change their mind about a transaction from seven to 14 days – and demands that retailers pay the cost
of returns.

Online retail trade body IMRG has calculated that the changes would add €10bn (£8.7bn) per year in delivery charges – 4% of the total European online consumer spend – and Robinson warns that consumers will have to foot the bill.

He says: “For any retail business returns are a big issue. No business can afford to absorb those added costs – we need to maintain profitability. It’s inevitable that the added cost will be passed on to the customer.”

Rates of returns

Robinson is not alone in his criticism of the proposals. Michael Ross, co-founder of online retail consultancy eCommera and founder of Figleaves, says: “It’s poorly thought out and unenforceable in practice.

“It’s encouraging more returns. Clearly the law wants to protect consumers but it’s doing so by imposing extra costs on retailers. It doesn’t feel sensible.” Retailers not yet geared up for international sales, and smaller businesses, would especially suffer, cautions Robinson.

He explains: “Those with more clout can work with bigger logistics firms to come up with solutions. Smaller businesses will not be able to do so.”

IMRG, which is petitioning for both the cross-border selling and free returns clauses to be removed, claims retailers should not be forced to trade internationally, rather it should be a choice for each individual retailer to make.

“Many smaller guys, in particular, will not know how to fulfil these orders,” says IMRG director of operations and regulatory affairs Andrew McClelland. “They might not be able to support sales in the other language.
I don’t see any benefit to the consumer there.”

Delivering internationally will
bring with it added costs, which will particularly hit etailers based in the UK  because of our island status.

McClelland believes that the law will fail in its aim to create a level playing field across Europe. He maintains: “It plans to make Europe one big market but the truth is it’s always going to be cheaper for local retailers.”

Robinson points out that trading internationally also has many hidden costs. He says: “Fraud will be a big issue. Fraud checks are a lot less sophisticated in some European countries, even in the likes of Spain. We will have to invest in more fraud protection software to protect us against it, and this might only be for a few international orders.”

Retailers will have to deal with further complications including understanding the VAT systems of other EU countries and dealing with customer service enquiries from consumers who speak languages other than English.

Robinson thinks that retailers will inevitably have to raise prices or impose large delivery charges on products to certain countries, effectively dissuading European consumers from shopping.

Return to sender

However, it is the combination of forcing international delivery with free returns for orders over €40 (£34.80) that could be the most harmful element of the directive. Already more than 30% of clothes ordered over the internet are returned according to IMRG, which warns the figure will spiral when the new directive is implemented.

McClelland says: “It’s highly detrimental to online retail. Fashion already has high return rates. It’s encouraging people to over-order – people will order three items to find the right fit. There is no two ways about it, it should be dropped.”

The cost of an increasing number of returns across Europe could be dangerous for retailers, according to Shop Direct boss Mark Newton-Jones. He says: “It could be very costly. We sell white goods and home furnishings. It could cost over €100 (£87) to return a sofa.”

Robinson again thinks that those additional charges will have to be added into the cost of products.

He says: “You have to ask whether this legislation really is benefiting the consumers it is trying to protect. The customer will be hit with higher-priced goods.”

Retailers that currently use free returns as a marketing ploy may have to rethink that strategy. Robinson said: “Offering free deliveries and returns gave some retailers a competitive edge. It won’t now. Perhaps they will have
to add delivery charges or hike prices.”The European Parliament’s final approval is likely by the end of the month and, if it gets the go-ahead, it could be in force by as early as July.

In response to etailer outrage, IMRG has been petitioning for the removal of some of the more controversial clauses (see box, previous page).

IMRG has penned a letter signed by 371 of its members, including heavyweights Marks & Spencer, Boots and Play.com, and is working in conjunction with its counterparts in France, Germany, Belgium, Spain and the Netherlands to halt these changes.

The time to act

McClelland says the European Parliament has confirmed the controversial articles are under discussion but there is no guarantee that they will
be removed.

The 100-page document, working its way through European Parliament, is being driven by the Internal Market and Consumer Protection Committee (IMCO).

But IMCO chairman Malcolm Harbour points out that nothing has been decided yet: “This round of negotiations will take about six weeks to agree but if the member states don’t agree, the whole thing will go to another six to nine months of negotiation before a second draft.”

He also adds that the bodies involved are not seeking to make retailers’ lives difficult. “We are aiming for a position where there will not be significantly incremental costs. If there are then we will have failed in what we set out to achieve,” he says.

Harmonising the process has been a challenge, adds Harbour. “It’s taken 60 meetings and three years of discussion already,” he says. But he says it is frustrating that retailers have left it so late to get involved. “Where were the retailers when this was in discussion in the last few years?” he asks.

Ross believes that even if the contentious points are passed, the directive would be unenforceable in practice.

He believes the rules will be largely ignored because very few consumers will be aware of their rights. Ross thinks the only way the industry will actively enforce the CRD is if a legal case occurs.

He says: “It’s truly pointless. You would think with the economy in such a mess, politicians would be trying to encourage trade.”

Ross also believes that retailers will find and exploit legal loopholes to avoid following what he terms the “ridiculous regulation”.

He explains: “Most people do not realise that when they shop with Amazon they are entering a contract in which they are subject to the laws of Luxembourg.

“I can see many retailers moving registered offices to outside the EU to avoid this.”

Whether businesses choose to follow the regulation or find a way to avoid its terms, it will clearly cause online and multichannel retailers a headache.

“It is ill thought out and has the potential to do some real damage,” says Robinson.

McClelland agrees: “Protecting consumers is very important but it has to take into account good business practice. This is just onerous regulation on the industry.”