How You Handle Returns Matters More Than Collecting Them For Retail Success
Most retailers know how to collect returns. Far fewer know how to handle them effectively.
Over the years, retailers have increasingly come to terms with the complex reality of product returns. The meteoric growth of this unwanted metric has forced retailers to seek new ways of engaging with returns — approaches that can ease the process, while rebuilding trust with dissatisfied customers.
The first recourse in most cases is to tighten the returns collection process, from the moment a customer plans to return an order to handing over the parcel. While companies have essentially nailed this, an efficient returns management process goes beyond its collection. For a business to avoid losing on its bottom line, it needs to find a way to convert returned packages into working capital, and fast.
Retailers typically hit a wall at this point. While companies gain raw data from customers returning products on the reasons they are returning them, transforming that into actionable insight to understand why returns happen takes more sophistication.
To begin with, not every return is the retailer’s fault. A classic example of this could be bracketing —a leading cause of returns inthe fashion and apparel industry. This occurs when customers order the same item in multiple sizes, such as a pair of shoes or sweaters, and keep the one that fits best, while returning the rest. Reasons for such returns range from “I changed my mind” to “Does not fit well,” giving the brand or the retailer little information to prevent such returns.
Building a returns-adjusted procurement plan for inventory management
While return reasons can vary and become increasingly complex as the SKUs increase, proper classification can help businesses understand return patterns, often enabling them to make adjustments in stock quality or quantity.
For instance, popular SKUs often run out of stock in the fashion and apparel industry. But with early visibility into returns, brands can reroute products coming back as a source of inventory to fulfill pending orders — provided the return passes quality checks. Real-time intervention enables retailers to secure the next order with the exact item, ensuring they don’t miss the sale.
Returns insights can go beyond just saving a sale; they can also highlight a manufacturing issue or defect very early in a product’s launch. This is common in electronics, where customers may face the same recurring problem — perhaps a button doesn’t respond, or there’s a weak connection somewhere in the device. If the brand continues to restock without catching that pattern early, they risk piling up inventory with the same flaw. Acting quickly on return data and channeling it back into production can help save both costs and customer trust.
Such challenges can be even more pronounced during peak season or holiday sales, when sales volumes spike. Too often, brands only look at the return data late in the process — when it’s already too late to make a real impact. This leads companies to end up with excess inventory post-holiday season, either due to ordering too much inventory or due to returns.
Identifying and assigning internal responsibility to product returns
While the smart approach to handling returns is to pulse inventory replenishment and feed returns data upstream to the manufacturing process, businesses hit a core problem at this stage — assigning clear ownership to returns. Returns are considered a lagging indicator, as data comes in weeks or months later, long after it could have influenced design or inventory ordering decisions.
What is largely missing today is full-circle ownership. Someone on the team needs to care about why returns are happening, rather than glossing over strong initial sales or e-commerce order spikes. Returns can quickly devolve into a nightmare if left unchecked, as they directly tie back to net sales and profitability.
Individuals in retail often shy away from accepting responsibility, fearing that associating themselves with the returns problem could harm their career prospects. Organizations must recognize that handling returns is a strategic function, and encourage employees to own it as an opportunity for impact rather than a liability.
On the flip side, top management can consider establishing a function, such as a head of returns management, to address this growing challenge. AI can also play a role here, assisting in gleaning information from customers and helping process and distribute that information across different internal teams.
Retailers must adopt a single-minded focus on uncovering the actual reason behind each return. Once that clarity is achieved, the priority should be to resolve the issue at its root — whether in design, sourcing, merchandising, or customer communication — at the stage where intervention can most effectively reduce the likelihood of similar returns in the future.
