Optimizing E-Commerce Profitability: A Deep Dive into Returns Management and Supply Chain Efficiency

E-commerce has rapidly become the engine of retail growth, but it brings with it a unique set of profitability challenges. As digital sales surge, so do the operational complexities and costs—particularly in the areas of returns management and supply chain efficiency. For many retailers, the very features that drive online conversion—fast shipping, broad assortments, and hassle-free returns—are also the ones that erode margins. The path to sustainable e-commerce profitability lies in mastering these operational levers, balancing customer expectations with cost discipline and innovation.

The Profitability Challenge in Digital Commerce

Global e-commerce sales are projected to account for nearly a quarter of all retail revenue within the next few years. Yet, for many traditional and digital-native retailers alike, e-commerce remains the least profitable channel. Features like same-day delivery, expansive product assortments, and free returns—now table stakes for consumers—chip away at already thin margins. According to industry research, nearly half of brick-and-mortar retailers with e-commerce channels report that their digital operations are less profitable than their stores, and a similar proportion of pure-play e-commerce retailers struggle to achieve profitability at all.

The root causes are clear: rising shipping and fulfillment costs, high rates of returns (often 40–50% in categories like apparel), and the operational burden of meeting ever-increasing customer expectations. The good news? Retailers have a growing toolkit of operational levers to address these challenges, and leading brands are already demonstrating what’s possible.

Returns Optimization: Turning a Cost Center into a Competitive Advantage

Returns are a critical pain point for e-commerce profitability. While a seamless returns process is essential for customer trust and conversion, it can quickly become a margin killer if not managed strategically. The key is to balance cost control with customer experience, using data and technology to get ahead of returns and streamline the reverse logistics process.

Best Practices for Returns Management

Data-Driven Product Information and Personalization: Many returns stem from uncertainty—shoppers buy multiple sizes or styles, intending to return what doesn’t fit. By leveraging data on purchase and return patterns, retailers can enhance product pages with richer information, fit guidance, and personalized recommendations. AI-driven tools can help customers select the right size or product the first time, reducing the likelihood of returns.
Segmented Returns Policies: Not all customers or products are equal when it comes to returns. Retailers can use customer and product segmentation to tailor return policies—offering incentives for in-store returns, limiting bracketing behavior, or dynamically adjusting shipping fees for high-return items. For seasonal products, encouraging faster returns can help recapture value before demand wanes.
In-Store Returns and Cross-Selling: Encouraging customers to return online purchases in-store not only reduces shipping costs but also creates opportunities for additional sales. Retailers can design dedicated in-store return areas, equip associates with digital tools to facilitate exchanges, and offer personalized incentives to turn a return into a new purchase.
Reverse Logistics Optimization: Modern returns management leverages technology to route returned items to the optimal location—whether that’s a local store, a regional warehouse, or directly to a new customer. Dynamic shipping labels and real-time inventory visibility ensure that products are restocked or resold quickly, minimizing markdowns and logistics costs.

Case in Point: Eileen Fisher

Eileen Fisher, a leading apparel retailer, implemented an end-to-end supply chain management system that consolidated inventory across physical and digital channels. This “endless aisle” approach not only reduced out-of-stock disappointments but also led to a double-digit increase in e-commerce sales and a measurable reduction in returns. Store associates, empowered with mobile tools, could assist customers anywhere in the store, improving both capacity management and the returns experience. The result: increased margins and higher customer satisfaction.

Supply Chain Modernization: The Backbone of Profitable E-Commerce

Efficient, agile supply chains are the foundation of e-commerce profitability. As fulfillment costs rise and customer expectations for speed and flexibility grow, retailers must modernize their supply chain operations to remain competitive.

Key Levers for Supply Chain Optimization

Unified Inventory and Order Management: Integrating inventory across stores, warehouses, and digital channels enables retailers to fulfill orders from the most cost-effective location, reduce cancellations, and improve stock accuracy. This approach also supports omnichannel services like buy-online-pickup-in-store (BOPIS) and ship-from-store, which can lower last-mile delivery costs.
Automation and Data-Driven Fulfillment: Advanced analytics and AI can optimize picking, packing, and shipping processes, improving speed and reducing errors. Automated warehouses, route optimization, and real-time demand forecasting help retailers scale efficiently, even during peak periods.
Flexible Fulfillment Models: Retailers are experimenting with micro-fulfillment centers, dark stores, and hybrid picking models to bring inventory closer to customers and reduce delivery times. These innovations not only improve customer experience but also drive down per-order fulfillment costs.

Case in Point: Carrefour

Carrefour, a global retail leader, transformed its e-commerce platform and supply chain in just six months, achieving a 150% increase in conversion rate and record-high customer satisfaction. By bridging organizational silos and leveraging real-time customer feedback, Carrefour continuously optimizes its fulfillment processes, enabling rapid releases and zero downtime. The result is a scalable, resilient supply chain that supports both growth and profitability.

Actionable Frameworks for Retailers

Retailers looking to optimize e-commerce profitability should consider the following actionable steps:

Map the End-to-End Cost-to-Serve: Analyze the true cost of each product and order, from fulfillment to returns, and identify high-cost items or behaviors that erode margins.
Invest in Data and Technology: Build the infrastructure for unified inventory, real-time analytics, and AI-driven personalization to support smarter decision-making across the value chain.
Segment and Personalize Returns and Fulfillment Policies: Use customer and product data to tailor policies that balance customer satisfaction with cost control.
Modernize Supply Chain Operations: Embrace automation, flexible fulfillment models, and cross-channel inventory management to drive efficiency and agility.
Foster Cross-Functional Alignment: Break down organizational silos between digital, store, and supply chain teams to enable holistic optimization and rapid innovation.

The Publicis Sapient Advantage

With deep experience in digital business transformation, Publicis Sapient partners with leading retailers to unlock sustainable e-commerce profitability. Our work with clients like Eileen Fisher and Carrefour demonstrates the power of operational excellence—combining strategy, technology, and customer-centric design to reduce costs, increase margins, and delight customers. By focusing on the operational levers of returns management and supply chain modernization, we help retailers not only survive but thrive in the digital era.

Ready to optimize your e-commerce profitability? Connect with us to learn how we can help you balance customer expectations with a sustainable, future-ready business model.