Understanding Retail Returns: 9 ways to reduce return rates

Learn everything you need to know about the impact of retail returns, the latest trends and stats and effective strategies to lower return rates.
retail returns

Returns in retail are unavoidable, and the explosive growth of ecommerce and retailers offering options like buy-online-return-in-store means customers are returning more products than ever. Considering the impact on profit, that’s a big concern.

However, savvy retailers are bringing more attention to the process, turning potential loss into opportunities to improve customer satisfaction, advance sustainability efforts and limit fraudulent returns.

What are retail returns?

Retail returns refer to the process where a customer returns a product they previously purchased from a retailer. Returns can occur for various reasons, such as dissatisfaction with the product, receiving a damaged item, wrong size, color, or simply changing one’s mind.

Facilitating free and easy returns for customers was initially a retail strategy to attract a larger online shopping audience.

However, free returns are actually quite costly, and impact both retailers and the environment. The expenses associated with transportation, labor, and logistics significantly impact retailers’ costs. Additionally, the process of handling returned items contributes to pollution, greenhouse gas emissions, and an increase in waste deposited in landfills, as a significant portion of returned products now finds its way there.

Today, retail returns account for $816 billion in lost sales across the U.S. retail marketplace, according to the 2022 Consumer Returns in the Retail Industry report, conducted by the NRF and sponsored by Appriss Retail.

Why do retail returns matter?

In the modern retail landscape, retail returns have become a critical aspect of the business, impacting both traditional brick-and-mortar stores and online retailers.

Retail returns matter to both customers and retailers because they impact various aspects of the shopping experience and business operations:

For customers:
  • Consumer expectations of convenience and flexibility: The ability to return products easily is a crucial component in the purchase decision. Retailers that offer hassle-free returns are more likely to attract and retain customers.
  • Customer satisfaction: Retail returns matter to customers because they provide peace of mind. Knowing items can be returned if they don’t meet expectations or fit correctly increases customer satisfaction.
  • Risk reduction: Customers are more willing to try new products or shop online when they know they have the option to return items that they don’t like. This reduces the risk associated with making a purchase.
  • Trust and loyalty: A retailer’s return policy can influence trust in the brand and customer and loyalty. A hassle-free return experience can lead to repeat business and positive word-of-mouth recommendations.
For retailers:
  • Sales and revenue: Effective returns management helps because returned products can be resold or restocked quickly. Poor returns management can lead to revenue loss.
  • Brand reputation: Retailers that excel in returns management gain a competitive edge. A lenient return policy can be a differentiator, drawing customers away from competitors. On the other hand, poor returns management can lead to lost sales and a damaged reputation.
  • Operational efficiency: Retailers need to manage returned items, process refunds or exchanges, and update inventory effectively to prevent bottlenecks and inefficiencies, which impacts the overall supply chain and financial health of the business.
  • Environmental impact: Unsold and returned items often end up in landfills, contributing to waste and pollution. Retailers are under pressure to find sustainable solutions for managing returns.
  • Data insights: Returns data can provide valuable insights into customer preferences, product quality issues, and trends. Retailers can use this data to make data-driven decisions about inventory, product development, and marketing.

Statistics and trends in retail returns

Source: NRF

  • The return rate rose from about 8% in 2019 (pre-pandemic) to over 16% in 2022.
  • As a percentage to sales, year-over-year rates remained flat at roughly 17% in 2022 and 2021, but up from nearly 11% in 2020.
  • At least 30% of all products ordered online are returned, as compared to 8,89% in brick-and-mortar stores.
  • Around 49% of retailers offer free return shipping
  • Top reasons why consumers return products
    • 20% received a damaged product
    • 22% of products look different than expected
    • 23% received the wrong item
    • 35% other reasons
  • 92% of consumers will buy something again if returns are easy
  • 67% of shoppers check the returns page before making a purchase
  • 62% off shoppers are more likely to shop online if they can return an item in-store
While these figures can vary by region and sector, some common trends include:
  • Return rates: Retail return rates can be substantial, especially in certain sectors like fashion and e-commerce. High return rates can pose challenges for retailers in terms of handling returned items efficiently.
  • Online vs. in-store returns: Ecommerce has higher return rates compared to brick-and-mortar stores due to the inability to physically inspect products. This trend has driven innovation in online returns processes.
  • Serial returners: A small percentage of customers, known as “serial returners”, account for a disproportionate number of returns. Retailers must balance customer satisfaction with preventing return abuse.
  • Seasonal peaks: Returns often peak during specific times, such as the holiday season. Retailers need to prepare for these peaks in advance to manage returns effectively.
  • Sustainability concerns: There’s a growing awareness of the environmental impact of returns. Retailers are exploring ways to reduce the carbon footprint associated with returns, such as optimizing transportation routes for returned items.
The environmental impact of retail returns

Retail returns have environmental consequences that are increasingly concerning. In ecommerce, returns account for 25% of total emissions.

The environmental impact of retail returns include waste generation, additional transportation emissions, packaging waste, overproduction, etc.

Many retailers are adopting sustainable practices to mitigate the environmental impact of returns. This includes refurbishing, recycling, and reducing packaging.

What factors contribute to retail returns?

Retail returns can be attributed to a variety of factors

Customer-related factors
  • Buyer’s remorse: Customers sometimes regret their purchase decisions after the initial excitement fades. This can lead to returns, particularly for non-essential or high-ticket items.
  • Impulse buying: Impulse purchases are common, especially in physical stores. Customers might buy something on a whim and later realize they don’t actually need or want it, prompting a return.
  • Changing preferences: Customers’ tastes and preferences can change rapidly, especially in industries like fashion or tech. A product that was trendy at the time of purchase can quickly become outdated, leading to returns.
  • Sizing issues: In the fashion industry, sizing discrepancies or the inability to try on clothing before purchasing often result in returns. Online shoppers may struggle with sizing accuracy. Many online retailers offer hassle-free return processes, which can encourage customers to buy multiple sizes or variations of a product with the intention of returning those that do not meet their expectations.
  • Product expectations: If a product doesn’t meet the customer’s expectations based on product descriptions, images, or reviews, they are more likely to return it.
Retailer-related factors
  • Packaging: Poorly packaged items may arrive damaged or in less-than-optimal condition, leading to returns. Adequate packaging can reduce the likelihood of damage during transport.
  • Product quality: Products that are defective or do not meet the promised quality standards are more likely to be returned.
  • Incorrect items being shipped: Issues with inventory management can result in the shipment of incorrect items or out-of-stock situations, which can lead to returns.
  • Return policy: While some retailers offer free returns, others may require customers to pay return shipping costs. This can influence the decision to buy or to return a product. If return policies are too restrictive or unclear, customers may be discouraged from making purchases in the first place or may return items more frequently.
  • Efficiency in Handling Returns: E-commerce businesses need efficient systems for processing returns, refurbishing products, and restocking items. Effective reverse logistics is crucial to minimize the impact of returns on the bottom line.

What’s the cost of retail returns?

Retail returns come with various financial and operational implications for retailers. Understanding these costs is crucial for effective returns management.

These are the financial implications of returns for retailers:
  • Refunds: Retailers must issue refunds for returned items, which impacts cashflow. This can be particularly challenging for businesses with tight profit margins.
  • Shipping costs: If retailers offer free return shipping, they bear the cost of both outbound and return shipping, impacting profitability.
  • Return processing costs: Retailers incur costs related to the processing of returns, including labor, transportation, and administrative expenses. This can include inspecting returned items, restocking, refurbishing, or disposing of them.
  • Inventory depreciation: Returned items may lose value, even if they can be resold.

Some customers request to return an item but then wait weeks before mailing it. It’s known as customer procrastination, and it also has a cost.

The longer these products remain unprocessed, the more value they can lose. High-priced electronics, such as laptops and tablets, have short product lifecycles and lose value quickly, sometimes at a rate of 1% per week. Seasonal items, such as back-to-school supplies or winter coats, become more difficult to resell if retailers get them back on shelves after demand has bottomed out.

Returns have a significant impact on both inventory management and supply chain logistics. When products are returned, they re-enter the inventory, which can disrupt the carefully balanced inventory levels.

Retailers need to allocate storage space, resources, and manpower to handle returned items efficiently.

Additionally, the condition of returned products can vary, requiring inspection, refurbishment, or disposal. This can lead to delays in returning items to stock, potentially causing overstock or understock situations.

In terms of supply chain logistics, the process of handling returns, including transportation and reverse logistics, adds complexity and cost to the supply chain.

Retailers must ensure that returned items move seamlessly through the reverse logistics process to minimize disruptions and maintain efficient supply chain operations.

Overall, returns pose both operational and financial challenges to inventory management and supply chain logistics, requiring careful planning and execution to mitigate their impact.

The impact of returns on customer loyalty and brand reputation
  • Customer satisfaction and repeat business: How retailers handle returns can significantly impact customer satisfaction. A positive return experience can encourage customers to shop with a retailer again. On the flip side, a negative experience may result in lost customers.
  • Brand reputation: A retailer’s reputation is closely tied to how it manages returns. Negative online reviews and word-of-mouth recommendations can harm a brand’s image.
  • Customer feedback: Returns provide an opportunity for retailers to gather feedback on product quality and customer preferences, which can be invaluable for improving products and services.
  • Competitive advantage: An excellent return policy can be a competitive advantage. Customers are more likely to choose retailers with customer-friendly return policies.
  • Return abusers: Retailers need to strike a balance between customer-friendly policies and preventing return abuse by serial returners.

Retailers can use data analytics to identify patterns of abuse and take appropriate action, such as flagging accounts for review.

New call-to-action

Types of retail return policies

Return policies are a critical component of a retailer’s customer service strategy. They can vary significantly in terms of generosity and terms. Effective policies strike a balance between accommodating customer needs and minimizing abuse, leading to a win-win situation for both retailers and consumers.

Here are some common types of return policies:

No questions asked:

This policy allows customers to return items without providing a reason. It is highly customer-friendly and can build trust, but may be susceptible to abuse.

In contrast, retailers may impose conditions for returns, such as the item being unused, in its original packaging, or with proof of purchase.

Return windows:

Retailers often specify a return window during which customers can return items. This could be a set number of days from the date of purchase, or it might vary depending on the type of product. A return window policy helps manage returns efficiently.


Some retailers offer exchanges for returned items but do not provide refunds. This encourages customers to choose alternative products rather than return items outright.

Store credit:

Instead of providing cash refunds, some retailers issue store credit for returned items. This keeps the money within the retailer’s ecosystem and encourages future purchases.

Restocking fees:

Some retailers charge restocking fees when customers return items. This fee covers the cost of processing and restocking the returned product. It can deter frivolous returns but may also deter some customers from buying in the first place.

Examples of effective return policies from successful retailers

Several successful retailers have implemented return policies that strike a balance between customer satisfaction and cost management:

  • Amazon: Amazon’s return policy is known for its customer-friendliness. They offer a generous 30-day return window for most items, and Amazon Prime members often receive free return shipping. The simplicity of their process encourages repeat business.
  • Zappos: Zappos, a shoe and clothing retailer, has a 365-day return policy, emphasizing customer convenience and satisfaction. Their no-hassle returns and free shipping contribute to a loyal customer base.
  • Costco: Costco’s return policy is famous for its leniency. They offer a full refund on most products with no time limit. This customer-centric approach builds trust and loyalty.
  • Nordstrom: Nordstrom’s return policy is based on the principle of “case-by-case” evaluation. They don’t have a formal return window, focusing on providing excellent customer service and handling returns on an individual basis.

Balancing customer-friendly return policies with minimizing return abuse is a challenge for retailers. Transparency and clear communication in return policies is essential. Retailers should communicate return policies clearly and enforce them consistently. Retailers can implement loyalty programs or incentives for customers who have a history of responsible returns.

Technology to manage retail returns

Technology and software tools are integral to streamlining the retail return process. They enhance efficiency, reduce errors, and provide valuable data insights that help retailers optimize returns management, improve customer satisfaction, and make informed business decisions.

CDP Data dashboards
There are different tech solutions involved in returns management
  1. Return authorization systems: Retailers use technology to facilitate the initiation of return requests, often through online portals or mobile apps. These systems automate the process, ensuring that customers provide all necessary information and that the return meets the retailer’s criteria.
  2. Barcode and RFID scanning: Advanced barcode and RFID (Radio-Frequency Identification) tech is used to identify and track returned items efficiently. This technology speeds up the sorting and inspection process by instantly matching returned products with their records in the retailer’s system.
  3. Inventory nanagement systems: Retailers rely on inventory management software to keep track of returned items, their condition, and their status in the refurbishment or resale process. This prevents overstock or understock situations and helps optimize inventory turnover.
  4. Refurbishment automation: Technology aids in automating refurbishment processes, such as cleaning, repairing, or replacing components. Automated machinery and software help ensure consistency and quality in refurbishing returned products.
  5. Data analytics: Advanced analytics tools are used to analyze data from returned products. Retailers can gain insights into common reasons for returns, product quality issues, and customer preferences. This data informs inventory decisions and product development.
  6. Reverse logistics software: Specialized reverse logistics software solutions are available to manage the entire return process efficiently, from return authorization to final disposition. These systems help track and trace returned items at every stage.
  7. Loyalty management software: Loyalty platforms need to take into account the cancellation of points earned from products that were eventually returned by a customer.
New call-to-action

TOP strategies to reduce retail returns

These are proactive and effective measures retailers can take to minimize returns:

1. Improved product descriptions:

Providing accurate and detailed product descriptions, including size charts, materials, and dimensions, helps customers make informed decisions, reducing the likelihood of returns due to unmet expectations.

2. High-quality product images:

High-resolution images and 360-degree views of products allow customers to examine items more closely, reducing the chances of returns due to dissatisfaction with product appearance.

3. Size and fit guides:

Offering comprehensive size and fit guides, including measurements and fit recommendations, helps customers choose the right size, minimizing returns due to sizing issues.

4. Virtual try-on and Augmented Reality:

Implementing virtual try-on or AR features for products like fashion and accessories allows customers to visualize how items will look on them, reducing uncertainty and returns. Retailers can leverage artificial intelligence to provide personalized size recommendations based on customer data, reducing returns related to sizing discrepancies.

5. Promoting conscious consumerism:

Conscious consumerism goes beyond traditional buying considerations of price, quality, and convenience. Instead, it focuses on ethics, social responsibility and the broader impact of products and services on society, the environment, and global communities. Retailers can educate customers about responsible returns.

6. Rewards for consumers with low return rates:

Can be part of a retailers’ loyalty program, rewarding customers with extra points for low return rates.

New call-to-action
7. Customer reviews:

Displaying customer reviews, images of products in use or UGC (user generated content) can provide real-world insights and build trust, leading to more confident purchases.

8. Predictive analytics:

Using predictive analytics to forecast demand and stock popular items can prevent out-of-stock situations that lead to returns.

9. Product and packaging quality control:

Implementing rigorous quality control processes can reduce the likelihood of selling defective or damaged items that may lead to returns.

The importance of customer feedback in improvement efforts

Customer feedback is invaluable for retailers looking to reduce returns and improve their overall operations. It helps identify common issues leading to returns, such as product quality concerns or problems with the shopping experience. Retailers can use feedback to make product improvements, addressing issues that frequently result in returns.

Listening to customer feedback and acting on it demonstrates that the retailer values its customers’ opinions, which can build trust and loyalty.

Emerging trends in returns management

As the retail landscape continues to evolve, several emerging trends in returns management have gained weight:

Sustainable practices:

Sustainability is a major focus, with retailers increasingly adopting eco-friendly packaging, refurbishment, and recycling practices to reduce the environmental impact of returns.

Automation and AI:

Automation, artificial intelligence (AI), and machine learning are being used to enhance the efficiency of return processing, including sorting, inspection, and refurbishment.

Blockchain for authentication:

Blockchain technology is being explored to improve product authentication, reducing the return of counterfeit goods and fraud.

Predictive analytics:

Retailers are leveraging predictive analytics to forecast return rates, optimize inventory, and manage staffing during peak return seasons.

Omnichannel returns:

Offering multiple return options, such as returning online purchases to physical stores, is becoming standard to enhance convenience for customers.

Growth of ecommerce:

The growth of online shopping will continue to influence returns, with more online purchases leading to higher return rates. Retailers will focus on reducing returns through better product information and virtual try-on experiences.

Subscription services:

Retailers with subscription models are implementing flexible return policies to maintain subscriber satisfaction and loyalty.


Retailers will use data-driven personalization to offer customized product recommendations, reducing the likelihood of returns due to mismatched preferences.


In conclusion, retailers have the opportunity to shift their perspective on returns from seeing them as a problem to viewing them as a valuable opportunity.

While returns undoubtedly come with their challenges, they also offer a chance for retailers to excel in customer service, drive loyalty, and gain valuable insights into consumer preferences.

By implementing innovative strategies, leveraging technology, and embracing sustainable practices, retailers can transform the returns process into a positive customer experience and a source of competitive advantage. Ultimately, returns can be a gateway to building stronger customer relationships and a thriving brand.

New call-to-action

Loyal Guru is a cloud based Loyalty Management & Personalization platform focused on helping Enterprise Retailers create the best customer experience by harnessing the power of customer data.

Our platform, trusted by leading retailers such DIA, SPAR, MANGO and DECATHLON, solves the unique challenges of developing retail business with next-gen loyalty initiatives, personalized offers at scale, advanced retail analytics and new opportunities for monetization. Chat with our team to learn what Loyal Guru can do for you.