As return volumes climb, companies are finding new ways to cut costs, speed processing and reduce manual handling.
From the September 2026 Issue of
Modern Materials Handling
Productivity Solutions: Mrs. Gerry’s automates packaging to keep up with demand
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No matter how you look at it, returns are a huge headache for retailers, manufacturers, distributors and the warehouses handling the fallout.
They’re also part of the cost of doing business in a world where a certain large online retailer still offers free, easy returns on most purchases. Matching that standard hasn’t been easy, but the lessons learned, plus a fair share of bumps and bruises, are helping companies speed up the returns process, cut costs and make it all somewhat less painful.
“Amazon has trained the consumer to expect free returns,” says Colin McAleenan, vice president of marketing and business development at Hai Robotics. “After eight to 10 years, customers may go elsewhere if you’re not offering that. The question becomes, just how far are you willing to extend that cost of doing business in the interest of customer satisfaction?”
That’s a question more companies are pondering as return rates continue to climb year over year. According to Capital One, U.S. retailers took back nearly $850 billion in merchandise last year, double the 2020 total. The average return rate is now 16% overall, with online purchases averaging 25% (compared with about 9% for merchandise bought in stores).
Holiday returns run about 8% higher, adding another seasonal surge to the already expensive and labor-intensive returns management process.
That flood of merchandise flows straight back into warehouses, where each item has to be received, inspected, reallocated, disposed of or sold through another channel. Returns are also an untapped sales channel that may wind up in bins at the back of the DC, waiting for someone to decide what to do with it.
For every pair of Levi’s jeans returned because of a sizing issue (with no damage or wear), there’s a customer out there who’d buy them if they were in stock and ready to ship or grab off the store shelf.
“Returns are a big problem for retailers because there’s no single right way to handle them, and the first step is still highly labor-intensive,” says Kim Baudry, market development director at Dematic. “Someone still has to inspect every item and decide whether it can go back into inventory, needs repair or has to be repackaged.”
Carving a path to better returns management
Reverse logistics may be a necessary evil in today’s selling environment, but all that returned merchandise doesn’t have to take over the warehouse, languish as it loses value or wind up in a landfill.
Here are nine best practices you can use to get those goods processed, routed, disposed of properly or put back into the sales channel faster.
1. Look beyond the return label and calculate what each item really costs.Robyn Meyer, senior vice president of parcel strategy and solutions at Transportation Insight, tells companies to count the return freight, handling, processing, inventory loss and final disposition value before deciding where an item should go.
“It’s not just the cost to come back,” Meyer says. For example, a product that cost $8 to ship out may cost more than $8 to bring back, then require another round of handling before it can be sold again. Damage, missing packaging or signs of use can cut its value even further.
Start by calculating the total cost for each product category, then compare that figure with the item’s remaining margin and resale value. From there, decide which carrier, service level and return location make the most financial sense. “Some goods may go back individually,” says Meyer, “while others can be consolidated through a partner or returned to a store.”
2. Choose the return route that makes sense for the product. Customers may print a label for a carrier pickup, drop the package at a UPS location or take it to a retail partner such as Kohl’s or OfficeMax.
“Look at how each return option impacts the product’s margin before settling on a route,” says Meyer. Business intelligence (BI) tools can help answer some of those questions.
Key questions to ask are: Where are we seeing the most returns? What’s driving those returns? Are there certain customers that drive the majority of them?
Use those answers to create different routes by product type, return reason and location. A high-value item can go directly to a third-party provider for inspection and refurbishment. Lower-value goods may be consolidated before shipment, while store returns may offer the least expensive option for customers who live nearby.
3. Use root cause analysis to head off the next return.As with anything in business, finding the root cause (in this case, what’s causing the return in the first place) can help stem the reverse product flow. Maybe the wrong item was picked, the inventory record was inaccurate or the product didn’t match its online description. Pinpoint those breakdowns, and you can fix them before the same problem generates another return.
Start by determining where fulfillment errors happen across the network, including DC picking, packing and store fulfillment. Then use scanning, verification software or automated picking systems to catch those mistakes before shipment.
“The more automated the operation is,” says Baudry, “the less likely it is that inaccurate inventory will leave the building.”
4. Help them try it on first. Clothing sizing charts aren’t always accurate, colors look different on a screen and shoppers may order a few different sizes knowing some will have to go back. This presents a major returns challenge for apparel sellers. McAleenan says companies can tackle the problem upstream by helping customers make better choices before they buy.
“The question is, how do you stop people from buying multiple items in the first place?” he asks. “Or, how can you represent the article more accurately to reduce the chances that they order two and return one?” Artificial intelligence and augmented reality tools can help here. They let shoppers upload a photo and see how a dress, hat or other item may look on them.
“Better product photos, more accurate color representation and detailed sizing information can also cut avoidable returns,” says McAleenan.
5. Keep returned merchandise from disappearing into the system. Outbound orders are tracked nearly every step of the way, but returns can disappear somewhere between the customer and the receiving dock.
“Most teams can tell you exactly where an outbound package is at any moment,” says Travis Rimel, chief product officer at ShipStation Global, “but ask them where a returned item stands and you get a shrug.” Add disconnected systems, manual data entry and no consistent approval process, and you get “a recipe for lost inventory, slow refunds and a support team drowning in status update calls.”
Rimel says companies are responding by stopping the “just refund it” reflex and building returns into the customer journey. That starts with giving returned items the same visibility as outbound orders. “We’re seeing brands centralize returns data alongside their shipping data,” he explains, “so a return isn’t a mystery box that shows up on a dock somewhere.”
6. Automate the handoffs where returns get stuck.At most companies, the returns process works like this: Someone emails a label, someone else updates a spreadsheet and a third person tries to reconcile what came back. “That gap between ‘customer wants to return something’ and ‘warehouse has processed it’ is where money quietly leaks out,” says Rimel, “whether that’s staff hours, slower inventory recovery or refunds issued for items that never even shipped back.”
Automation can remove some of the manual grunt work from the process, from generating labels to updating return statuses to routing approvals. That way, teams don’t have to touch every request by hand. Companies are also using AI to predict which returns may be fraudulent or violate policy.
7. Lay down the rules before returns arrive. Don’t wait for the returns to start piling up before setting your returns policy. Meyer recommends creating business rules that tell employees what happens next based on the item’s value, condition and return reason.
“For an item under $20, it may make more sense to issue a returnless refund,” she says. “An item over $20 with its tags attached may go straight back into inventory, while one without tags may require a functional inspection.”
Embed those instructions right on the return label or in the portal so employees can direct the item to the right bin as soon as it arrives. “When it comes back into your DC, you can just throw it in bins, knowing exactly what you’re going to do with it,” Meyer says. And one final tip: Standardized return reason codes also give companies consistent data on sizing problems, damage, customer dissatisfaction and other causes.
8. Give returned inventory a better shot at being resold.Companies often divide returned goods evenly across the network or automatically send them back to their original location. Instead, look at where demand exists and route each item accordingly. For example, an item sitting untouched in one facility may sell quickly from another location.
“If a product isn’t moving or it’s taking up valuable space in the DC, maybe it just doesn’t belong there,” says Baudry.
The point here is to stop treating every return the same. Look at what’s selling across your DCs, stores and fulfillment points, then send the item where it has the best chance of getting back into a customer’s hands. You can also use software to track inventory across the network and flag products that have been sitting too long.
9. Put pouch sorters on the returns job. Give those overhead conveyors another assignment: moving apparel returns back into inventory or straight to an open order. After an associate inspects and rebags an item, a conveyor drops it into a pouch that travels overhead to its next destination.
“It can go right back to a packing station because that item was needed for an order,” says McAleenan.
The system can route the item back to an automated storage and retrieval system or another storage area. Because each pouch carries one item, returned apparel stays separated and identifiable as it travels through the DC. Place induction points near inspection stations, McAleenan recommends, then connect the pouch sorter to inventory and order data so sellable returns can be routed without another round of manual handling.
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About the Author
Bridget McCreaBridget McCrea is an Editor at Large for Modern Materials Handling and a Contributing Editor for Logistics Management based in Clearwater, Fla. She has covered the transportation and supply chain space since 1996 and has covered all aspects of the industry for Modern Materials Handling, Logistics Management and Supply Chain Management Review. She can be reached at [email protected], or on Twitter @BridgetMcCreaFollow Modern Materials Handling on FaceBook
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