Rethinking Returns Strategy to Trace and Tackle the 'Why' of Product Returns

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In their relentless push to increase topline sales, businesses often overlook product returns, as they are both inconvenient and disheartening. For one, unlike the myriad of processes that lay down concrete steps on improving sales numbers, handling product returns is a more open-ended scenario that rarely comes with a blueprint.
This is thanks to the complexity of gauging product return reasons. Zeroing in on reasons can often lead businesses down a rabbit hole, as customers might not be truthful, consistent, or even aware of the actual reason for their return. Then again, companies cannot afford to gloss over return numbers, as the returns tsunami continues to climb higher with each passing year. The National Retail Federation believes that total returns in the retail industry hit $890 billion in 2024 — surely, a cause for concern.
While there are several factors impacting product returns that go beyond the control of retailers, some recurring patterns are well within their scope to address. It could be as simple as crafting a clear return policy or a flexible return window, ensuring it aligns with the product and its customer expectations.
Product detailing, with its descriptions, visuals, and sizing, is another important metric that the brand controls. The top management must ask itself fundamental questions such as, “Are we accurately describing the product in question? Are the descriptions and visuals setting the right expectations? Are the sizing guides accurate relative to the actual product?”
Accounting for ‘right’ return reasons by matching them with product returns
The lack of comprehensive data on the reasons collected at the time of return can come back to bite the retailer. Often, the returns form is a placeholder that is either a drop-down list or a space where customers are asked to enter a reason manually. Something as simple as offering the right return reason options can make a massive difference in the quality of the data you collect.
For instance, if the options are limited to just ‘sizing,’ ‘color,’ and ‘other,’ the business cannot expect to glean meaningful insights from the answers. A detailed list helps. Stacking questions, such as asking follow-up questions to a particular answer, can help clarify and enrich the reasons data. Also, dynamically reordering lists helps prevent data from being skewed by impatient customers who click the first item on the list to expedite the process.
A well-refined returns reasons database can help businesses understand the ‘why’ behind product returns. The next step is to marry that front-end data with the actual condition of the returned item that comes through to the return processing operations. This is crucial to verify if the return reason matches the physical reality of the item, for example, whether a product marked as “defective” actually shows signs of damage, or if an item flagged as “wrong fit” is in resellable condition.
If customer-reported reasons and actual product condition are not tied together, the retailer might end up making decisions based on flawed or misleading data. Fashion merchandise retailers frequently see customers ordering several sizes of the same product, only to return all except one. Observing product returns and their corresponding reasons can help uncover patterns, leading to more informed inventory planning decisions.
Building dynamic strategies to address product returns
Companies must firmly focus on areas that are internally controllable. With precise data, retailers can also spot potential abuse of the return policy. For example, consider a customer who frequently orders multiple sizes or colors, keeps one, and sends back five or six every time. Such behavior can be tracked and flagged for further review. The company can proceed to charge the buyer a small return fee to curb such behavior.
Compare that to a loyal customer who regularly purchases smaller quantities and keeps most of what they buy. In here, the retailer could offer more flexible or generous return options, prompting the customer to continue patronizing the brand. Such dynamic strategies help companies ensure they strike the right balance between protecting margins and preserving customer loyalty.
Pricing-related returns can also be addressed the same way. If customers return orders because they find a better price elsewhere, the brand can avoid the return by offering a price match or a discount right away. And if return data suggests that this is becoming a trend, it could be time to adjust pricing on that SKU.
In some cases, there could be trade-offs while offering a customer experience that is on par with or exceeds market expectations. For instance, if other brands allow customers to buy multiple sizes with free returns and no hassle, it might be prudent to offer the same just to stay competitive.
Streamlining data streams across company-wide operational units
One of the common issues with returns management is the siloing of collected data. While e-commerce and CX teams can gather insights on returned items and make changes to the site to reduce returns, they may not be sharing that data with operations. Alternatively, they may not be linking it to how products are received, inspected, and graded upon return.
Even more importantly, top management must consider whether returns insights are making their way upstream — informing the decisions of teams responsible for product design, sourcing, and material selection. Without that feedback loop, the root causes of returns remain unresolved, buried under operational quick fixes.
With the right technology in place, companies can start connecting the dots. Within a returns management system, business units can utilize dashboards and download automated reports, then share them across teams. This universal visibility makes it easier to have regular discussions and build alignment around what the data uncovers.
Ultimately, it is about removing data silos. Companies must look to assign someone to own this area of business, someone who’s operationally responsible and empowered to act. That person or team should be incentivized to make a tangible impact in key areas, such as customer experience, cost reduction, product improvement, or process efficiency.
That said, returns cannot be eliminated entirely, as they will always be a cost of doing business. Managing and optimizing areas within the business’s control will reduce unnecessary return-related expenses and offset those that cannot be avoided.