Preparing for the Rise in Online Retail Returns

In 2021, returns cost retailers a whopping $761 billion, or almost 17% of total U.S. retail sales. This year the powerful combination of the special sale dates in Q4 (like Target, Amazon and Walmart holding October Black Friday events) and an increase in ecommerce holiday shopping means that this upward trend for returns will continue.

Returns can be an excellent opportunity to sell something new to a known customer. But the truth is that we live in an increasingly “instant gratification hustle culture,” where consumers know precisely what they want and have high expectations. There’s no time for ill-fitting, poorly described items. There’s also not a lot of time for complicated return policies.

How online retailers handle merchandising, use technology and approach return policies can mean the difference between waste and wins. Below are some considerations to prepare for the peak shopping season and the post-holiday return influx.

Optimize: Before and After

Optimization is the name of the game — to take everything and elevate it. For example, retailers need to optimize inventory to show customers exactly what they want. On the other end, retailers should make returns easy and ensure customers don’t simply return but also browse their selections and purchase new items.


Retailers know which products will be in high demand during the holidays by analyzing historical data to anticipate future purchasing. Using AI for search, merchandising and personalization is necessary to deliver a great customer experience and provide consumers with what they want. Optimizing inventory based on trends and historical data means the customer will get the exact item they are looking for.

Retailers can also create a return policy that avoids waste. Returns are increasing labor costs due to inspection and restocking time and often cause markdowns, out-of-stock and logistics expenses to increase. Including an in-store return policy for retailers with brick-and-mortar options puts consumers around products they might want to swap. Brands can also use a service like Happy Returns to make the return as central and frictionless as possible for customers. This often gets the item back to the retailer in a quick enough turnaround to resell the items at the same price, avoiding margin loss.

Use Tech to Augment the Customer Experience

It is clear that the best way to avoid returns, especially for online retailers, is by using technology to improve accuracy and personalize the experience.

A 2019 Narvar study found that 46% of returns were attributed to the “wrong size, fit, or color.” Relying on AI and 3D modeling can be a critical way to avoid disappointment. A 3D modeling technology like True Fit, used in most online fashion sites, allows the consumer to get an accurate picture of the correct garment fit.

Augmented reality (AR) has also become a star of the online retail world. An Alter Agents survey found that “Buyer confidence is critical, and 80% of shoppers who use augmented reality during their process say they feel more confident in their purchase due to using that interactive technology.” The survey found that buyers who employ AR are less likely to return merchandise. This has been most popular for cosmetics sites. Still other brands, like IKEA and Warby Parker, see its value in placing furniture virtually in rooms or having consumers try on eyeglasses before committing to their purchase.

Be Responsible and Transparent

Previously, retailers boasted lenient return policies with long windows to reduce “returns anxiety,” but lately the tables have turned. With margins closing in, brands like Kohl’s, L.L.Bean, Dillard’s, J.Crew, Zara and REI are deducting a fee for returns made by mail. Bath & Body Works has also limited its previously open policy to 90 days and $250 worth of merchandise. Although this might not be a popular choice, retailers must prepare a clear transparent policy.

Lenient return policies make it easier for the consumer to waver with a commitment to the merchandise. Many shoppers will buy an item in multiple sizes or colors and return the unwanted pieces. Unfortunately, this model is becoming increasingly unsustainable and is squeezing profit margins.

Considering the cost of returns, retailers may look to build prepaid labels or boxes into their model. For example, Warby Parker allows buyers to try on several pairs of glasses and return them. For Amazon’s “try before I buy” option, the company sends shoppers a box of items to try on and return what they don’t want.

The reality is that returns not only waste an astronomical amount of money, but also each year they generate five billion pounds of waste. Retailers are responsible for the effects of their outputs. They must approach inventory management, merchandise accuracy and return policies strategically. Ecommerce is here to stay and only getting stronger. Optimizing returns impacts not only society but also the retail bottom line.

Zohar Gilad is an experienced technology entrepreneur and executive. In 2013, he co-founded Fast Simon, Inc. (formerly InstantSearch+), leveraging his experience to bring state-of-the-art site search to millions of publishers and e-tailers at an affordable cost. Throughout his career, Gilad has been the driving force behind more than 20 software products for millions of users worldwide.

Feature Your Byline

Submit an Executive ViewPoints.


Access The Media Kit


Access Our Editorial Calendar

If you are downloading this on behalf of a client, please provide the company name and website information below: