Returns Are Quietly Eating Retail Margins. The Fix Starts Before the Refund

Returns used to be treated like a customer service issue.

A shopper brings something back. The store approves it. The refund goes out. The item either goes back on the shelf or disappears into the back room.

That worked when retail was simpler.

It does not work now.

Returns have become one of the clearest tests of whether a retailer’s systems actually work together. NRF’s 2025 Retail Returns Landscape projects total retail returns will reach $849.9 billion in 2025, with 19.3% of online sales expected to come back. The same NRF report found that 82% of consumers say free returns matter when shopping online, but 9% of all returns are fraudulent and 45% of shoppers say it is acceptable to bend the rules.

That is the trap.

Make returns too easy, and margins leak. Make them too painful, and good customers leave.

The answer is not a harsher policy. It is a smarter operating layer behind the policy.

The real problem is not the refund

The refund is only the visible part.

The real mess happens behind it.

A return touches the order system, POS, inventory, warehouse, loyalty, finance, fraud controls, store operations, and sometimes customer service. If those systems do not agree, the return becomes a margin problem fast.

The order says returned.

The inventory system says unavailable.

The store team thinks the item is sellable.

The website still shows the wrong promise.

Finance is waiting on reconciliation.

The customer is waiting on a refund.

Nobody sees the full picture, so everyone fixes their own piece manually.

That is how returns quietly turn into bad inventory data, slow refunds, customer frustration, unnecessary markdowns, and inventory promises that customers stop trusting.

Fraud makes the gap even more expensive

The pressure is not only operational.

Appriss Retail and Deloitte reported that total merchandise returns reached $685 billion in 2024. Fraudulent returns and claims created a $103 billion loss for retailers, with 15.14% of returns considered fraudulent.

That is why retailers are tightening policies.

But blunt controls punish everyone.

A strict return policy can stop some bad behavior, but it can also make loyal customers feel like suspects. The better approach is to connect more signals before making the decision.

• Was the product purchased online or in store?
• Was it part of a promotion?
• Was loyalty used?
• Has the customer returned the same category before?
• Is the item actually the same item that was sold?
• Can it be resold, repaired, transferred, or should it be written down?

That is not a policy question. It is a data question.

The fix starts before the item comes back

The best retailers are starting to treat returns as a live workflow, not an afterthought.

That means every returned item needs a clear path:

• Accept the return
• Verify the item
• Decide the condition
• Update inventory only when it is truly sellable
• Route it to the right location
• Trigger refund logic
• Reconcile finance
• Feed the data back into buying, planning, and fraud models

The key is timing.

If a returned item is added back into available inventory too early, customers can buy stock that is not really ready. If it is added too late, sellable inventory sits idle while teams mark down other products. Both outcomes hurt margin.

That is the connected commerce problem.

Returns only get cleaner when the workflow can see the order, item, customer, location, condition, inventory status, and refund logic at the same time.

The bottom line

Returns are not going away.

Customers expect them. Digital commerce depends on them. Return fraud is getting harder to ignore. The old answer was to make the policy stricter. The better answer is to make the workflow smarter.

The retailers that win will not be the ones that simply make returns harder.

They will be the ones that make returns cleaner, faster, and more connected.

A return is not the end of the sale anymore.

It is the moment your systems prove whether they can protect the customer and the margin at the same time.

Want to see how SkillNet helps retailers connect returns, inventory, orders, and commerce data? Learn more about StoreHub and SkillNet’s Data and Analytics work.