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China’s e-commerce industry pushes back on “no-return” refunds

Written by Nikkei Asia Published on   6 mins read

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Pioneered by Pinduoduo, the policy has become a burden on platforms and merchants.

Early this month, when Eleven received an item she ordered from Taobao, Alibaba’s flagship retail platform, she saw a note attached to the package: “If you initiate a returnless refund without the seller’s approval, you will be sued immediately for a compensation of around RMB 2,000 (USD 280),” it read.

The Hangzhou-based office worker, who asked to use only her English name, said she was shocked at first, as she had never personally requested a returnless refund before, but in the end could only laugh.

China’s online retail platforms are finding it less easy to laugh, as they grapple with the fallout of returnless refunds, also known as no-return refunds, a policy pioneered by Pinduoduo that allows shoppers to request a refund on their purchases without returning the items in question.

The policy has sparked backlash from merchants and scrutiny from authorities, who have called on companies to refrain from “malicious competition.” Any benefit for platforms, meanwhile, appears marginal at best.

Now, some online retailers are tightening their terms and conditions as the long struggle continues over balancing customer satisfaction with profits and protecting sellers.

Taobao, for instance, announced last week that it had intercepted over 400,000 “unreasonable” refund-only transactions per day since amending its policy in August, adding that it had offered more than RMB 300 million (USD 42 million) in total compensation to merchants who successfully appealed after buyers received returnless refunds. The new rules give merchants with high store review ratings more room to negotiate with buyers, and the platform is also using a model to identify “abnormal consumers,” such as those suspected of excessive returns and refund-only requests, to make it harder for them to get “freebies.”

Why was a policy so ripe for abuse introduced in the first place? To win trust, ironically.

The refund-only policy is not unique to China. For example, Amazon shoppers have long been able to receive refunds without return on certain orders, mostly for low-value items that might cost more to return. US cosmetics site Glossier and the online retail arm of Target also offer returnless refunds on a case-by-case basis.

But in Asia’s biggest economy, where e-commerce competition is especially fierce, such policies have been taken to extremes. Pinduoduo, which shares a parent company with bargain shopping app Temu, launched a limited version of its refund-only policy in 2021. The platform had already developed a reputation for cheap—in both senses of the word—goods, and wanted consumers to shop with confidence. It soon took its “buyers first” approach a step further by offering full refunds on many more orders, with only a few conditions attached.

The platform even monitors real-time conversations between buyers and sellers, and intervenes by offering immediate returnless refunds if it deems the sellers are “not responding politely,” multiple merchants told Nikkei.

As Pinduoduo began aggressively grabbing buyers from more established rivals, many soon followed suit with similar policies. Douyin, Taobao, JD.com, and Kuaishou have all introduced refund-only policies in the past year.

Just how effective these policies have been at improving quality levels and raising customer trust is an open question.

“Some merchants indeed have issues with product quality or product mismatch descriptions,” Cao Lei, director of the e-commerce research center at 100 EC, told Nikkei. “In such cases, a refund-only policy will compel merchants to enhance product quality and after-sales service.”

Sellers, however, say the terms can be too generous to shoppers and accuse platforms of winning buyers at the cost of sellers.

A merchant in Zhejiang province, who sells makeup sample boxes on both Taobao and Pinduoduo, told Nikkei that she received more no-return refund requests on her Pinduoduo shop—which equated to around 5% of her total sales last year—even though she offers the exact same products on both platforms.

“Some buyers would demand a refund without return, citing ‘bad quality,’ and the platform will just immediately refund them. I did try to appeal, but every appeal would take seven to 10 days and mostly ended in failure,” she said.

Pinduoduo did not reply to Nikkei Asia’s request for comment.

In a survey by 100 EC of more than 2,000 sellers on platforms including Taobao, Tmall, JD.com, Pinduoduo, Vipshop, Douyin, Kuaishou, and Xiaohongshu, 8% said around 80% of their total orders had to be refunded without a return in the past year, while only 1% said they did not experience any returnless refund requests.

In a report on the findings, 100 EC said that high returnless refunds hurt profitability. Among businesses experiencing severe losses, around 21% reported a returnless refund rate of 80%, the report said.

“Our observation shows that the returnless refund on e-tailers was quite evident in the first half of this year and peaked in July. However, starting from August, following complaints from businesses and government regulatory departments, various platforms have made adjustments,” Cao said.

While some may argue that high refund rates simply indicate poor quality, there are also worrying signs of intentional and widespread abuse of the policy. Groups popping up on social media, for example, offer to teach individuals how to game the system. For a fee ranging from USD 4–40, these groups provide tips such as how to file a complaint against sellers and how to react to hotline services’ inspection calls.

In the industry, a sense of urgency about the problem is growing. A senior executive at Alibaba said during the company’s Singles Day shopping event in October that the refund-only policy was creating “significant panic and burden for merchants,” particularly those selling low-priced products.

According to an online survey conducted by Shanghai-based media outlet Yicai this month, 72.64% of all requests for returnless refunds occurred on Pinduoduo, followed by 38.68% on Taobao, and 11.32% on JD.com.

Some sellers are taking legal action. From 2021 to July 2024, Chinese courts handled around 500 disputes over returnless refunds, which peaked at 249 last year.

Meanwhile, China’s new “Interim Provisions on Anti-Unfair Competition on the Internet,” which stipulates that platforms cannot impose unreasonable restrictions on merchants’ transactions and pricing, came into force on September 1. Shortly after, Pinduoduo issued a letter to its sellers highlighting key strategies to enhance the effectiveness of after-sales appeals.

Troubles at home have not discouraged Chinese e-commerce platforms from exporting the refund-only policy overseas, though some buyers say they are uncomfortable with the underlying message the policy sends.

A woman living in Seoul, who asked not to be named, ordered a jumpsuit from a Chinese e-commerce platform in late August, but found the material didn’t meet her expectations. She contacted the platform for a possible return and was told she could keep the item and still receive a full refund.

“The refund-only policy is a little disturbing to me; it feels like they are mass producing cheap items without caring about shoppers’ preferences, focusing more on quantity than quality,” she said, adding that because the jumpsuit’s material felt too cheap to give away, she ended up throwing it out.

“While it’s convenient for me as a shopper since I don’t have to repack and return the item, I do feel guilty about the environmental impact. I would feel better if the item could be resold through the platform,” she said.

Back in China, there is also debate over the policy. Eleven posted an image on social media of the letter she received, sparking heated discussion over the pros and cons of returnless refunds.

“It’s really hard to reach a consensus,” she told Nikkei. “As a consumer, I was very upset to see the warning. If there are no quality issues, I wouldn’t return the goods. But in the current environment, I also understand the sellers’ frustration.”

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.

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