Returns are a merchant’s least favorite part of ecommerce. Not only does a return equal lost revenue, but there’s also the cost of the ecommerce returns management process itself, and the possible opportunity costs of missed resale.
The problem of returns fulfillment is getting worse, not better. According to Capitol One Shopping Research, the average retail return rate is 24.5% for ecommerce and 8.71% for in-store purchases. Moreover, in 2024, consumers returned $362 billion in merchandise from online sales and $324 billion from in-store sales.
In sum, effective ecommerce returns management is no longer optional if your business expects to stay profitable and keep customer satisfaction high.
The product returns management process has become an integral part of offering a positive customer experience in ecommerce; if your returns fulfillment processes are not streamlined enough to meet customer expectations for an easy refund or exchange, you’re unlikely to retain shoppers.
So, what does effective ecommerce returns management mean as we head further into 2025? Let’s take a look:
Seeking effective ways to combat retail return fraud
The phrase ‘return fraud’ often brings to mind nefarious practices, like making return requests and keeping the merchandise, or returning stolen items to a brick-and-mortar store for a ‘refund’. The thing is, the vast majority of return fraud is more benign in appearance.
Practices like ‘wardrobing’, where consumers wear an item once and then return it, or ‘bracketing’, where a consumer buys multiple versions of an item to test out and then return, occur at incredibly high rates. According to Loop, nearly 40% of U.S. shoppers say that they or someone they know had engaged in return policy abuse or fraud in the past 12 months.
These habits have become incredibly common because consumers don’t see themselves as doing anything harmful. After all, wardrobing and bracketing are not outright theft. Yet this only makes it more difficult for ecommerce businesses to manage. These incidences of return fraud are incredibly hard to spot until they’ve already happened, leaving brands to deal with the messy aftermath.
Rather than penalizing customers who engage in these behaviors, try using positive reinforcement to encourage options that don’t bog down the returns process.
For example, offer free exchanges for different colors or sizes – but charge restocking fees on outright returns – to help encourage customers to pursue exchanges instead of engaging in bracketing or wardrobing. Likewise, implement a discount or extra loyalty points when customers accept store credit to provide a more appealing alternative to a refund.
Nevertheless, brands should stay aware of other types of return fraud. It’s not just wardrobing and bracketing – empty box scams, price switching, returning stolen merchandise, and receipt fraud make frequent appearances.
Ultimately, return fraud is not trending in the right direction: In 2024, 15.1% of retail sales returns were fraudulent, totalling $104 billion in 2024. This means brands must address the complexities and challenges through up-to-date strategies and clear, firm return policies.
Creating a fair, balanced return and refund policy
As ecommerce has grown, return policies from online merchants have grown more generous to gain a competitive advantage. Unfortunately, as no-questions-asked return policies became the norm, this has spawned a range of additional challenges for brands.
Although they might help encourage sales, unlimited returns policies significantly impact other areas of operation. Constant ecommerce returns and exchanges can easily throw inventory levels out of whack, making inventory management more challenging. SKUs can swing between stockouts and excess levels, especially if units of returned merchandise and replenishments arrive in tandem.
For this reason, many ecommerce brands are taking a more measured approach to returns management. This includes shortening return windows, increasing restrictions on returns, or introducing restocking fees in a bid to rein in the more destructive return behaviors.
Worried that stricter return policies might undermine customer satisfaction and loyalty? Return studies have proven that these concerns are unfounded. According to a survey by Blue Yonder, 89% of retailers reported making their return policies more conservative over the past 12 months, yet over half (59%) reported an increase in return rates over the same period.
The verdict? Customer loyalty and hassle-free returns might not be as closely linked as brands have been led to believe. Bringing in sensible restrictions, such as offering store credit instead of refunds or return processing fees, helps to reduce losses while improving the returns management process.
Implementing a streamlined process to get inventory back on the shelf
Managing ecommerce returns is far more than approving a return request and issuing a refund. If returned merchandise cannot be resold promptly, your business is looking down the barrel of higher inventory holding costs, not to mention lost sales.
The key reason why ecommerce businesses struggle to resell returned inventory is that they don’t have a robust workflow to inspect and recondition returned merchandise. At the very least, an item may require repackaging or relabeling, or even repair or maintenance, depending on the return reason. If this can’t be accomplished quickly, the returned inventory quickly piles up.
And, if the season comes to an end without being able to shift those returned units, resale opportunities may dry up completely. Over time, this seriously undermines profitability and bogs down warehouses with dead stock that needs to be liquidated or donated.
Ecommerce returns must enter an efficient workflow the moment they arrive at your return processing center. This includes inspection, repackaging, reconditioning (if needed), and re-entering into inventory so that levels remain accurate. This way, returned inventory is ready for resale as quickly as possible, so your business can retain more revenue.
The steps to process returned merchandise and get it back into play should look something like this:
- Inspect returned item for damage or use
- Test item (if applicable) to ensure functionality
- Repackage with correct labeling and materials
- Update inventory in the warehouse management system
- Restock in the appropriate location for resale
Analyzing your ecommerce returns data closely
Returns data holds the key to understanding return behavior and how to tweak your management approach for better cost and efficiency.
The key to success? Ensuring that you collect the right data in the first place. When customers make return requests, make sure you are gathering relevant insights that help with returns fulfillment more effectively. This includes:
- Personal details e.g. email or account information
- Order number
- Reason for returning
Tracking customer details allows your business to see whether that customer has a track record of problematic returns behavior, so your business can take action if necessary.
Moreover, tracking the reasons for returns (i.e. wrong size or color, a product defect, or arriving too late for use) gives you actionable intel to refine both the returns fulfillment process and the broader shopping experience.
For example, if a particular garment is seeing a high return rate due to incorrect sizing, you may need to update the product page with more comprehensive information about the fit.
Utilizing digital tools for fraud detection
Returns fraud is a costly problem for retailers, which means retail support businesses and developers have been working on solutions.
Emerging technologies are allowing brands to better detect fraudulent activity and identify suspicious patterns and sources of fraud. If your brand experiences a high number of fraudulent ecommerce returns, using these tools can make an enormous difference. The key is finding the right solutions. Look for software with:
- AI pattern detection for spotting suspicious behavior
- Customer return history tracking
- Flagging high-risk items or SKUs
- Geo/IP monitoring for mismatched orders
- Integration with POS and ecommerce platforms
- Real-time alerts and fraud scoring
How 3PLs and brands team up to tackle ecommerce returns
There’s a reason for the catchphrase “stronger together.” When brands and retail partners collaborate to combat a problem, there is a higher likelihood of success.
Brands can team up with payment processors, other retailers, and 3PL providers to share information about fraud trends, individuals, tactics, and what workflows and return policies work for them. Joining forces goes a long way in creating better returns management strategies.
Effective ecommerce returns management in 2025 is not about viewing returns as lost revenue or limiting returns on online purchases, but understanding how returns and exchanges have become a critical strategy for CX management and maintaining profitability.
This requires a proactive approach to increase customer satisfaction and reduce the operational and opportunity costs associated with returns. Efforts such as disincentivizing retail return fraud, optimizing reverse logistics, analyzing return data to understand the underlying causes, and refining return policies to strike a fair balance between convenience and cost will go a long way toward turning returns into an asset for your business.
Don’t let ecommerce returns pile up and profits slip away. Chat with a Kase specialist to turn your returns process into a streamlined, revenue-saving operation.
