Shopping is always more enjoyable knowing you can return a purchase if it doesn’t fit or feel right. It’s a kind of ‘safety net’ that makes it easier to buy something without overthinking it.
But from a retailer’s point of view, the entire returns process presents complex challenges.
In recent years, these challenges have increased substantially, as consumers send back hundreds of billions of dollars’ worth of merchandise annually. In fact, return rates hover around 15% for physical stores and soar to 20% or even 30% for e-commerce purchases.
This massive influx of returned goods can quickly reverse holiday success or a high-performing marketing campaign, ultimately leading to lower sales and thinner profit margins.
Losses are even greater for those retailers who still view returns as a “necessary evil” – a mindset rooted in the past – and neglect the efficient handling of items that are sent (or brought) back to the store.
However, the tide is turning. Returns management is no longer just a cost center; it has become a strategic opportunity to drive customer loyalty, build a competitive edge, and increase profitability.
What Is Returns Management?
Returns management in the supply chain is a crucial and systematic process for handling returned products efficiently. A core element of modern retail and e-commerce, it begins when a customer initiates a return request, continues through resolution – refund, exchange, or store credit – and ends with processing the returned product, whether restocked, sold as open-box, refurbished, or recycled.
Returns management integrates elements of customer support, logistics operations, inventory control, and sustainability to ensure efficiency, customer satisfaction, and cost-effectiveness.
Why Is Returns Management Important For Retailers?
Effective retail returns management is increasingly important for both physical and online stores for three main reasons:
- Returns are rising, especially in e-commerce
- Returns processing is expensive
- Post-purchase service shapes customer loyalty
- Reverse logistics offers multiple opportunities for growth
In fact, processing a single return can consume anywhere from 20% to 65% of the item’s original value!
But cost is only part of the story. Returns affect brand trust and loyalty. According to recent surveys:
- 92% of consumers say they’re more likely to shop again with a brand if the return experience is easy.
- 81% say they’d switch to a competitor after a poor return experience.
That means your returns process isn’t just cleaning up after the sale – it’s helping shape the next one.
Returns Management Process & Strategies
Returns may seem simple from the outside, but under the hood, they’re a multi-step operation that must be optimized end-to-end.
Here’s a typical workflow for the returns management process – starting when an online customer decides to send a product back:
1. Return Policy Setup & Communication
It all begins with transparency. A clearly written, easy-to-find return policy informs shoppers about the process for returning their item(s). Taking it back a few steps, detailed return policies set expectations early, during shopping, and reduce friction later.
2. Customer Initiates Return
So, the customer triggers the process via your website, app, or customer service team. They typically provide a reason for the return and may also indicate their desired resolution (refund, replacement, or store credit).
3. Approval Or Disapproval
The request is reviewed against your policy – either by your staff or via automated systems – to determine eligibility, and it’s either approved or denied (with clear reasoning).
4. Generate Return Label And Instructions
If approved, the system generates a return shipping label and provides clear instructions for packaging and shipping the item back.
5. Reverse Logistics & Pickup/Drop-Off
The customer uses the provided label or chosen method (mail, in-store drop-off, third-party location, home pickup) to send the product back.
6. Receipt & Logging
Upon arrival at the warehouse or fulfillment center, the returned item is scanned, logged into the system, and the inventory records are updated. A return receipt confirmation is then sent to the customer.
7. Inspection & Grading
Each item undergoes a thorough inspection to assess its condition (e.g., unused, used, damaged) and whether it can be reintegrated into your supply chain in one way or another.
8. Disposition Decision
So, based on the inspection, the item is restocked, refurbished, repaired, recycled, liquidated, or responsibly discarded. It’s at this point where margin recovery meets sustainability.
9. Inventory Update & Processing
Inventory levels are updated to reflect the returned items’ new status and location. Financial records are also adjusted.
10. Customer Communication & Refund
The customer is informed about the approval of their return, the timeline for the refund, or the delivery date of an exchanged item. Timeliness here drives satisfaction and repeat business.
11. Analytics & Continuous Improvement
Every return tells a story. Analyzing return data helps identify patterns, problematic products, and areas for policy or logistical improvement. These insights fuel smarter merchandising and operations upstream.
Ecommerce Returns Best Practices
Effective returns management in ecommerce helps brands boost customer loyalty while staying profitable. Here are some key best practices:
Create A Comprehensive And Clear Return Policy
Always have transparent, easy-to-understand policies that include:
- return windows
- product condition requirements
- return methods
- refund/exchange options
- who covers return shipping costs…
… and anything else that might be necessary for specific items.
Remember to place your return policy in more than one spot in your e-commerce store, where shoppers can easily see it – even when they are not looking for it!
Where Should The Return Policy Be On The Website?
- On product pages
- In the website footer
- During the checkout process
- In the purchase confirmation email
Highlight any favorable return terms throughout your store, e.g., “Try It On at Home, Send It Back Easy” or “Free Returns Shipping” – and make sure you always live up to your promises, gracefully.
Provide Accurate And Detailed Product Information
When shoppers know exactly what they’re ordering, they are much less likely to return it.
Some things to consider adding to your product pages to improve order accuracy:
- rich content
- high-resolution images
- videos
- 3D/AR models
- detailed descriptions
- precise dimensions
- material details
- comprehensive size guides (including model sizing)
All these extras will help prevent customer disappointment due to products not matching expectations.
Automate The Returns Process
Implement a customer returns management system to automate tasks such as:
- generating return labels
- tracking shipments
- approving eligible returns
- processing refunds or exchanges.
Automated returns not only make the process faster and easier for your customers, but they also ensure consistency and free up your staff for higher-value tasks.
Offer A Self-Service Returns Portal
Make the post-purchase experience more pleasant for shoppers by offering them a branded returns portal where they can initiate returns, select reasons, choose their preferred resolution (refund, exchange, store credit), print labels, and track their returned item journey.
This approach is super convenient and also reduces customer service inquiries.
Ensure Secure Packaging And Shipping
Protect your products before they go out with appropriate packaging (e.g., bubble wrap) and correct parcel sizes to prevent damage during transit. Label fragile items clearly.
Keep Customers Informed
Provide real-time tracking for returned parcels and send automated notifications via email or SMS at each stage of the returns process: initiation, receipt at the warehouse, refund/exchange processed, etc.
Visibility also reduces WISMR (Where Is My Return?) inquiries.
Prioritize Sustainable Returns
Encourage eco-friendly practices such as offering “returnless refunds” for low-value items, opting for store credit, and encouraging in-store drop-offs to reduce emissions and waste (and make sure you highlight all these sustainable practices to your customers!)
Analyze Returns Data
Continuously collect and examine returns data: measure return rates by SKU, category, and customer type. Identify trends and root causes. And then act: refine product content, fix packaging, or adjust sizing recommendations.
Returns Management Examples
Many companies have leveraged returns management strategies to enhance customer loyalty and even drive new revenue. Here are some examples:
Fit Without The Risk
Zappos, an online shoe retailer, became famous for offering free returns for used shoes with a generous return policy.
The brand recognized that fit is crucial for shoe satisfaction and eliminated the risk of trying on shoes at home, boosting customer confidence and loyalty, despite potential increases in returns.
Returns Data, Smarter Design
The women’s fashion brand Ecru significantly improved its return economics by analyzing returns data to optimize product design and merchandising.
They identified problematic fabrics and removed or refined poor-performing items. Moreover, they enriched product descriptions based on customer feedback to better inform consumers about fit.
The result? Return rates were reduced to 9% (on a three-month moving average) compared to competitors’ average of 25%-30%.
Returns Without The Ride
Through a partnership with a specialized 3PL, Best Buy, an electronics retailer, developed a “virtual parts returns process” for its service logistics operations.
Field technicians, while at a customer’s home, can use technology to immediately determine if a defective part is eligible for remanufacturing or is unusable – preventing unnecessary transportation of parts that would eventually be discarded.
The result? Significant reduction in freight emissions and costs, as well as expedited credit receipt for returns.
See It Before You Buy It
To address the challenge of customers accurately judging the size of dog crates online, Gunner Kennels implemented augmented reality (AR) and 3D technology on its e-commerce site.
This allowed customers to visualize the crates in their space and compare sizes, which directly contributed to a reduction in return and exchange rates.
Pay To Return, Free To Drop Off
In a move to offset rising costs, Zara began charging for online product returns, while allowing free in-store drop-offs.
This approach encourages customers to choose the more cost-effective in-store return channel, helping the global retailer manage logistics and transportation costs.
Evidently, there are countless ways to adapt your returns management strategies into opportunities for operational improvement and stronger customer relationships.
And that’s exactly what we do at Agile SCS. Our expert team supports you all the way so that you make the most of your customer returns. We manage the entire process and help you establish effective return policies that minimize losses and ensure customer satisfaction.
From receiving to inspecting and from restocking to responsibly disposing of products, we streamline the entire returns workflow so you can concentrate on doing business.
Ready to optimize your customer returns? Let’s work together!