Returns have quietly become one of retail's biggest challenges, with online returns on track to approach half of all retail returns by the end of the decade, even though ecommerce sales will only account for about 20% of total sales, according to EMARKETER forecasts.

"Returns may feel like a cost center for retailers, but if you don't have the right levers in place and you don't treat it like an opportunity to court a customer, you might never get them back," said our analyst Suzy Davidkhanian on a recent episode of “Reimagining Retail.”

The challenge for retailers is finding balance between growth, customer expectations, and profitability while managing the environmental impact of extra shipping and packaging waste.

Product information drives the majority of returns

Several factors contribute to product returns, but gaps in product information, including about the quality of an item, consistently rise to the top.

"A lot of people will order something and believe it to be of certain quality,” said our analyst Blake Droesh. “And then when they receive it, they can really just feel it [doesn’t match up].”

Fit and sizing also play a major role, especially in apparel, where variability across brands and styles makes it hard for shoppers to consistently choose the right option.

• "There's just no way to really convey the look and feel of a product," said our analyst Sky Canaves, citing the difficulty of buying jeans online when fabric weight and drape can't be communicated through product pages.
• Other categories, like auto parts, face similar issues due to the complexity of ensuring accuracy and compatibility based on product information alone.

Return fraud and impulse buying add to the problem

Intentional return fraud accounts for an estimated 15% of ecommerce returns, according to Canaves, higher than the National Retail Federation's 9% figure for all retail, which includes in-store purchases.

Impulse purchasing and changing one’s mind are also common contributors.

"You could purchase something scrolling on your phone late at night and then wake up the next morning and regret it," Droesch said. The expectation of immediate gratification means purchase decisions are constantly changing, particularly during promotional events like Prime Day when FOMO drives purchases.

By contrast, operational issues like delivery problems or product damage appear to play a relatively smaller role, with ongoing improvements in logistics and fulfillment helping to reduce the frequency of returns driven by these factors.

The bracketing dilemma

Bracketing, when customers order multiple sizes or colors with the intention of returning some, represents a gray area between legitimate shopping behavior and margin-eroding practices.

Though it does present complications for retailers, bracketing isn’t necessarily fraudulent behavior. Canaves argued it stems from uncertainty rather than fraud, with consumers buying multiple sizes when they aren’t sure which will be the best fit.

As return policies have become more lenient, consumer behavior has adapted. Retailers now face the challenge of reining in costly practices without appearing to take away conveniences customers have come to expect.

Technology and personalization offer solutions

Both analysts advocated for technology-enabled personalization of return policies, though with different emphases.

• Canaves suggested retailers invest in technology to "understand the reasons for returns on a more individualized customer level basis" and tailor offers accordingly.
• Droesch proposed a two-tier system: paid returns for refunds versus free exchanges that ship immediately, guaranteeing the retailer still captures a sale.

"You don't want to give away too much,” said Canaves. “And that's where more personalized technology can help to understand which consumer sits where, and you don't have to give everyone the same things.”

Listen to the full episode

We prepared this article with the assistance of generative AI tools and stand behind its accuracy, quality, and originality.

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