Retail Experts Share Tips to Reduce the (Hefty) Cost of Product Returns This Holiday Season

According to the National Retail Federation, consumers returned merchandise totaling $761 billion in value last year.

As the rise of e-commerce leads to higher volumes of returned goods, retailers are looking for ways to streamline their operations and minimize the necessity for these returns.

Experts suggest several strategies, such as providing comprehensive product descriptions, analyzing customer feedback to refine merchandising, and incentivizing shoppers to choose exchanges over refunds.

The growing prevalence of online shopping and the ease of returning items have prompted businesses to adopt technological solutions to improve the efficiency of their return workflows.

Companies are implementing automated systems designed to both lower the expenses associated with returns and boost customer retention.

Retailers are increasingly turning to end-to-end return management systems to coordinate the entire process and drive efficiency CEO of ReverseLogix, which partners with brands like Wilson Sporting Goods, Cole Haan, and Samsonite on their return programs

When return rates were lower—typically between 5% and 10%—companies had less motivation to take aggressive steps to cut costs, he noted. Now that return rates have surged alongside rising labor and supply chain expenses, businesses are scrutinizing their return systems for opportunities to improve efficiency.

“There are so many of these factors that are almost forcing the hands of companies to invest in the right technology,” said Saran.

Slaying the $761 billion product return issue

The National Retail Federation estimates that $761 billion worth of retail goods were returned last year, representing an average of 16.6% of total retail sales.

“Retailers must rethink [of] returns as a key part of their business strategy,” said Steve Prebble, CEO of Appriss Retail, a technology provider that released the report with the NRF. “Retail is dealing with an influx of returned items. Now is the time to stop thinking of returns as a cost of doing business and begin to view them as a time to truly engage with your consumers.”

Hannah Bravo, Chief Operating Officer of Loop, a firm that provides return solutions for brands like Allbirds and FIGS, agreed that merchants—particularly those with high e-commerce sales—are examining their return processes with intense scrutiny.

“Once you’ve paid for the acquisition of a customer, and they have decided to buy with your brand, the most cost-efficient thing you can do is everything possible to keep that customer coming back,” she said. “And the post-purchase experience is a really critical part of that.”

The most effective way to lower return rates is to prevent them from happening in the first place, Bravo noted.

One primary strategy is to focus on the product description pages that shoppers review before making a purchase. For apparel, she explained, these pages serve as “the equivalent of a fitting room.”

Providing 360-degree views, sizing charts, customer reviews, and other helpful content can give shoppers the confidence that a product will meet their expectations, thereby reducing the likelihood of a return, Bravo said.

Furthermore, retailers should analyze why customers are returning items so they can adjust their merchandising to address these concerns.

“If they can improve the product itself and make it less likely to be returned, that can be really impactful,” Bravo said.

Artificial intelligence and machine learning are becoming increasingly vital to these efforts, she added.

Saran agreed that resolving customer issues is a primary method for merchants to lower return costs. For electronics, he explained, simple troubleshooting with a customer can often resolve the problem and prevent a return.

“When the customer is creating the return request on the portal [on a customer’s ReverseLogix platform], if it’s a laptop, for example, we can say, ‘Before you send the return, have you tried to do some troubleshooting?’” he said. “Sometimes it’s as simple as they didn’t know how to turn it on.”

Encouraging in-store returns plus potential add-on sales

Another priority is cutting return shipping costs by encouraging customers to bring items back to physical stores whenever possible. Bravo noted that this also provides retailers with a chance to generate additional sales.

For instance, Loop has collaborated with footwear and apparel brand Allbirds on a strategy that directs customers to physical retail locations, which is often more sustainable and cost-effective than shipping items back.

“They have really leaned into leveraging those stores to give customers a more convenient, label-free, box-free path that’s cheaper to Allbirds and ultimately gives them the opportunity to convert the customer [to spend more],” said Bravo.

Sustainability is becoming a major factor in how merchants handle returns, Saran added. Brands are using technology to guide customers toward nearby return centers rather than shipping items over long distances, which appeals to environmentally conscious shoppers.

Companies are also finding ways to salvage returned goods that cannot be restocked, such as by repairing them or selling them as discounted, pre-owned items, Saran said.

Recapturing sales by converting product returns into exchanges

Direct-to-consumer brands also have opportunities to retain sales by encouraging customers to opt for exchanges rather than full refunds, Bravo said.

“If you can shift some of those refunds into exchanges or into store credit, that’s a really meaningful way for a retailer to improve the impact on their bottom line,” she said.

Loop’s objective when working with retailers is to transform the return process into “more like a delightful shopping experience” for the consumer.

“It’s great for the customer, because they end up with something they love instead of a disappointment, and it’s great for the brand because they can turn that into a customer for life,” said Bravo.

Returnly, a technology firm acquired by the payment platform Affirm in 2021, also aims to salvage sales and improve customer satisfaction by offering immediate reimbursement.

“Returnly settles orders in real time and takes on product return risk by paying for repurchases up front and in full, making returns and exchanges seamless and helping merchants drive higher return-to repurchase rates, increased revenue from returns, and higher customer satisfaction,” an Affirm spokesperson told CO—.

The Returnly platform, which is utilized by brands like UNTUCKit and Outdoor Voices, also captures data to inform merchandising decisions and automates return workflows to save on labor and boost efficiency.

“Returns are inherently a friction-filled experience,” the Affirm spokesperson said. “The consumer has bought something that they don’t want and are counting on the retailer to make it right.”

Tapping data for fast and efficient product returns during the holiday selling season

Businesses are also utilizing data to process returns more quickly once they reach a store or warehouse, which is particularly vital during the high-volume holiday season, Saran said.

Returning items to inventory as quickly as possible allows them to be resold faster, he noted. By using technology to track daily return volumes, brands can adjust staffing levels to manage the influx more effectively.

Another cost-saving tactic involves evaluating the resale value of returned items. For example, if a seasonal product has already been marked down for clearance, it may be more economical for the merchant to let the customer keep the item and issue a refund rather than paying to process the return.

Technology enables retailers to implement these types of processes, Saran said.

“If they put the right processes and technology in place, they will be in a better position to deal with the tsunami of returns,” he said. “You don’t want to be in a situation where you don’t have the space or the labor or the technology to process those returns very quickly.”