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Returns have always been a thorn in commerce. Costly to process, frustrating for customers, and often ignored until they hit the P&L. In our recent roundtable with leaders across footwear, kidswear, apparel, and home goods, one message came through clearly: the old approach is broken.
Brands that continue to treat returns as an unavoidable cost center are leaving money on the table. The ones pulling ahead are reframing them entirely and treating them as a profit channel in their own right.
1. Returns as Behavioral Data
It’s tempting to look at return rates as a blunt operational metric: higher equals worse. But the operators we spoke with are reframing returns as behavioral data, rich with customer psychology.
- Kidswear: Parents buy large sizes anticipating growth, which keeps returns low (10–15%).
- Footwear: First-time buyers experiment with sizing, driving rates closer to 20%.
- Tailored apparel: Returns climb to 25–30%, but nearly half are exchanges. Bracketing multiple sizes reflects education gaps, not disloyalty.
The insight is return rates vary widely by category, so you can’t rely on industry averages. Benchmark against your own category to know if your rate is good or bad. It’s important to note that return behavior doesn’t always represent dissatisfaction. A customer returning two out of three items may actually be on the path to becoming a loyal repeat buyer, if the brand treats that return as part of the customer journey, not a cost to stamp out.
For Brands:
- Separate refunds from exchanges. A 30% “return rate” that’s 50% exchanges tells a very different story than one that’s 30% refunds. Use this nuance to avoid overcorrecting with stricter policies.
- Map behavior by category and cohort. A first-time footwear customer behaves differently from a repeat one. Treat them differently in your reporting—and in your policies.
- Close the loop with education. PDPs, size guides, and follow-up communications should address the exact pain points your return data is surfacing. If people are bracketing tailored apparel, invest in fit tutorials.
The smartest brands aren’t asking, “How do we reduce returns?” They’re asking, “What are our returns telling us about where we still need to build confidence?”
2. Returns Software as Strategic Infrastructure
A few years ago, returns platforms were treated like interchangeable widgets—pick one, plug it in, and move on. That’s no longer the case. The brands at our roundtable spoke about software not as a commodity but as a strategic layer in their tech stack, with real implications for customer experience and unit economics.
- Shopify-integrated incumbents dependability and full-integration across the tech stack but pricing can be tricky, as it's often based on anticipated volumes.
- New entrants like Redo shifted costs to customers via handling fees, cutting brand expenses by two-thirds in some cases.
- Return bar networks won points for convenience.
- AI-driven newcomers showed promise but weren’t yet enterprise-ready.
The message is clear: choosing returns software is no longer about saving pennies. It’s about building resilience and aligning your stack with long-term strategy.
For Brands:
- Evaluate like you would your ecommerce marketing platform. Returns platforms now carry the same weight as checkout or fulfillment. They touch the customer, the P&L, and the brand promise. To be truly mission-critical, they must integrate seamlessly across your tech stack, from your eCommerce platform to your ERP.
- Model against peaks, not averages. A platform that looks affordable in April can wreck your budget in January if it charges overages on holiday surges. Stress-test contracts against worst-case return volume.
- Integration > sticker price. A cheaper tool that doesn’t connect cleanly with your ERP or 3PL will cost more in manual work, lost data, and frustrated customers. The cheapest option up front often becomes the most expensive downstream.
The new lens is simple: is this software helping us future-proof returns as part of our brand’s growth strategy, or is it a band-aid?
3. Processing Costs: The Make-or-Break Factor
Everyone loves to talk about resale, but resale only works if the math works. Processing costs are the invisible line between margin recovery and margin loss.
- Specialized partners are hitting $5-$8 per item, including grading, relabeling, listing and fulfilling. At that level, resale is a profit channel.
- Traditional 3PLs are still quoting $12 per return, which means resale is upside-down before any additional fees.
This cost delta explains why leading brands are splitting logistics. Primary 3PLs are optimized for inbound containers and outbound orders. Specialized partners are designed for returns, resale, and reconditioning. Forcing everything through a single channel breaks the math.
For Brands:
- Run SKU-level resale P&Ls. Not all items are worth routing into resale. Model resale value minus processing and shipping cost by category, then decide where resale should apply.
- Don’t let core 3PLs dictate viability. Their incentives are speed and scale, not margin recovery. Expecting them to “figure out resale” is setting yourself up for disappointment.
- Invest in dual lanes. A dedicated returns lane (with its own partner, SLAs, and KPIs) prevents bottlenecks in your core fulfillment and unlocks resale viability.
This is the hard truth: resale is not a sustainability strategy unless it is first an economic strategy.
4. Policies That Reshape Customer Behavior
Returns aren’t just inevitable—they’re learned behaviors. Customers respond to the incentives and guardrails brands create, and the operators at our roundtable showed how small levers can create major shifts.
- Handling fees can reduce friction returns without eroding loyalty. One home goods brand introduced a flat $10–12 return handling fee and saw return rates fall by more than 5%. Crucially, this didn’t damage repeat purchasing. Why? Because the fee wasn’t framed as punishment—it was positioned as a reasonable cost of service, reinforcing the idea that returns still mattered, but weren’t free to the business.
- Generous store credit outperforms cash refunds. A kidswear company tested offering store credit that was more valuable than a straight refund, and nearly half of their returns converted into exchanges. This didn’t just protect margin—it encouraged a “second purchase” mindset, strengthening the customer relationship rather than ending it.
- Guarantees can preempt bad behavior. One footwear brand offered a “growth-spurt guarantee,” letting parents buy the next size up at a discount. This reduced worn returns dramatically, because it acknowledged a real-life customer challenge and gave a fair, structured outlet for it.
- Final-sale categories clear risk inventory without feeding the return cycle. Apparel brands created “Last Chance” sections where heavily discounted SKUs were designated final sale. Customers still perceived value in the deal, while brands avoided the churn of seeing those units boomerang back into inventory.
For Brands:
- Test incentives methodically. Even a small handling fee or credit multiplier can reshape return rates—but the impact differs by category, price point, and customer base. Start narrow, measure outcomes, then scale.
- Frame every policy as customer-first. A $12 fee positioned as a “handling cost” signals fairness; positioned as a “penalty,” it breeds resentment. Words matter as much as economics.
- Treat policy as strategy, not fine print. Too often, return policies are written as legal disclaimers. The most forward-thinking brands treat them as tools to shape behavior and protect loyalty at the same time.
The bottom line: policies don’t just manage returns, they engineer customer norms.
5. Resale as a Core Strategic Channel
A decade ago, resale lived on the margins. It was something brands dabbled in for sustainability optics or as a small side experiment. Those days are gone. At the roundtable, leaders across categories agreed: resale is now a structural part of the business.
- Brand-owned resale platforms capture value from returns unfit for full price. Instead of liquidating or shelving B-grade inventory, companies are redirecting it into resale channels they own and control.
- Peer-to-peer programs surface demand for archive or discontinued products. One apparel brand noted that pieces sitting unsold in their sale section for years became top sellers once listed on resale, proving that “dead stock” is often just misallocated.
- Even samples and photo-shoot units are monetized. What used to be sunk costs are now treated as revenue streams, extending the life of every unit produced.
This reframing is powerful: resale isn’t just about sustainability or PR, it’s about inventory efficiency and margin recovery.
For Brands:
- Stop treating resale as a CSR experiment. If resale isn’t in your P&L, you’re underestimating its impact. It should sit alongside wholesale, DTC, and marketplaces as a defined revenue stream.
- Use resale to manage lifecycle, not just excess. Resale isn’t just for clearing returns, it’s a channel for moving seasonal overstock, slow sellers, and one-off units profitably.
- Position resale as a customer experience, not a compromise. Customers who buy resale often perceive it as a privilege with access to “vintage” or “rare” items. Lean into that narrative, and resale can actually elevate your brand rather than dilute it.
Resale has crossed the chasm and is no longer optional. It’s table stakes for a modern product business.
6. AI: The Coming Decision Layer
The final theme that emerged was the role artificial intelligence is beginning to play in reverse logistics. Today, returns are still largely processed manually, item by item, box by box. Tomorrow, AI promises to automate not just grading but the very decisions about where products should flow.
- Condition detection is already emerging. Platforms are piloting photo-based AI that can spot stains, pet hair, or other signs of wear before a return is even mailed back. This helps filter unviable returns before they create cost.
- Smart routing is the bigger prize. Instead of human graders deciding whether something goes back to full price, resale, or liquidation, AI can weigh resale velocity, processing cost, and condition data to route items to their most profitable outcome in real time.
- Localized resale could bypass warehouses entirely. One executive imagined a future where AI routes items directly to nearby buyers, eliminating the need for central reprocessing and slashing shipping costs.
For Brands:
- Start building the dataset today. AI is only as smart as the historical data it trains on. Brands that log return conditions, resale velocity, and processing outcomes now will be the first to benefit when smarter routing systems mature.
- Pilot automation in narrow lanes. Start with AI-driven grading or routing for a single category, like footwear, before rolling out across the business. Early wins build internal momentum.
- Think beyond cost savings. The true opportunity of AI isn’t just faster grading; it’s optimizing the economics of every return at scale. That means higher resale capture, lower processing costs, and potentially even entirely new resale models.
AI won’t eliminate returns. But it will decide, faster and smarter than humans ever could, whether a return becomes margin recovery or margin drain.
The New Playbook
What this roundtable revealed is that returns are undergoing a profound redefinition.
The old playbook was defensive: absorb costs, tighten policies, and accept erosion of margin.
The new playbook is proactive:
- Returns as customer intelligence. They show you where confidence and education gaps remain.
- Software as strategy. Returns platforms are infrastructure choices, not commoditized tools.
- Processing economics as gatekeeper. Profitability lives and dies at $3 vs $12 per item.
- Policies as levers. Returns can be engineered with incentives that protect both margin and trust.
- Resale as core channel. It’s not a side project; it’s a growth engine.
- AI as decision-maker. The future of returns lies in smart automation that routes every unit to its highest-margin outcome.
The operators embracing this shift are proving that returns don’t have to be a drag on growth. Managed strategically, they can be one of the most powerful levers a brand has for protecting profitability, deepening loyalty, and building competitive advantage.
