Optimizing Returns: Turning a Trillion-Dollar Problem into a Competitive Advantage for Retailers

Returns have become one of the most pressing—and costly—challenges in omnichannel retail. With global merchandise returns exceeding $1 trillion annually and return rates for online purchases up to three times higher than in-store, the impact on margins is undeniable. Yet, for forward-thinking retailers, returns are not just a cost center—they are a powerful lever for operational efficiency, customer loyalty, and competitive differentiation.

The Returns Dilemma: Margin Erosion and Customer Expectations

The surge in e-commerce has fundamentally changed consumer behavior. Shoppers now expect hassle-free returns as a standard part of the retail experience, and flexible policies have become a key driver of purchase decisions. However, every returned product can erode 5 to 8 margin points, and the operational complexity of reverse logistics—from processing and restocking to resale or recycling—can quickly spiral out of control. For many retailers, the returns backlog after major disruptions (such as the COVID-19 pandemic) has rivaled the volume seen during peak holiday periods, compounding financial strain.

But the challenge is not just about cost. Returns are a critical touchpoint in the customer journey. Nearly half of consumers cite easy returns as a deciding factor when choosing where to shop online, and a poor returns experience can undermine years of brand-building in a single transaction.

The New Playbook: Data, AI, and Process Innovation

Leading retailers are rewriting the rules of returns management by leveraging data, artificial intelligence, and process innovation. The goal: reduce unnecessary returns, streamline reverse logistics, and transform returns into a loyalty driver.

1. Reducing Return Rates at the Source

The most effective way to optimize returns is to prevent them in the first place. This starts with empowering customers to make better purchase decisions:

Enhanced Product Data & Virtual Try-On: Rich product descriptions, detailed imagery, user reviews, and virtual try-on tools (including augmented reality and AI-powered fit recommendations) help shoppers select the right item the first time. For example, AI-driven personalization tools can recommend sizes based on a shopper’s profile and past purchases, reducing the need for “bracketing” (buying multiple sizes with the intent to return).
Predictive Analytics: By analyzing historical return data, retailers can identify high-risk products and customer segments. This enables targeted interventions—such as limiting the number of sizes per order, incentivizing in-store returns, or adjusting marketing for products with high return rates.
Customer Segmentation: Retailers can segment customers based on return behavior and lifetime value, tailoring return policies and incentives accordingly. For high-value customers, a generous policy may drive loyalty; for serial returners, stricter guidelines or dynamic shipping fees may be appropriate.

2. Streamlining Reverse Logistics for Profitability

Even with the best prevention strategies, returns are inevitable. Operational efficiency is key to minimizing their impact:

End-to-End Inventory Visibility: Only 17% of retailers have full visibility into inventory across stores, warehouses, and returns. Modernizing inventory systems—using RFID, real-time data capture, and cloud-based platforms—enables faster restocking, reduces stockouts, and supports profitable resale.
Dynamic Routing: AI and machine learning can optimize the routing of returned goods, sending items directly to the location where they are most likely to be resold, reducing unnecessary shipping and handling costs.
Automated Processing: Robotics and automation in warehouses accelerate the inspection, sorting, and restocking of returned items, reducing labor costs and time to resale.
Sustainable Returns: Circular economy initiatives—such as resale, refurbishment, and recycling—turn returns into new revenue streams while supporting sustainability goals.

3. Returns as a Loyalty and Experience Driver

Returns are a moment of truth in the customer relationship. Retailers that excel here can turn a potential pain point into a loyalty-building opportunity:

Frictionless Omnichannel Returns: Allowing customers to return online purchases in-store, via curbside, or through convenient drop-off points creates a seamless experience. Some retailers offer instant refunds or store credit at the point of return, encouraging immediate re-purchase.
Personalized Incentives: Using data to offer personalized deals or recommendations during the return process can convert a return into a new sale.
Transparent Communication: Real-time tracking and proactive updates on return status build trust and reduce customer anxiety.

Actionable Frameworks for Returns Optimization

Publicis Sapient recommends a holistic, data-driven approach to returns optimization, anchored in three pillars:

Prevention: Invest in product data, digital tools, and AI to help customers make confident purchase decisions and reduce avoidable returns.
Operational Excellence: Modernize reverse logistics with end-to-end inventory visibility, dynamic routing, and automation to minimize costs and maximize speed to resale.
Experience & Loyalty: Design returns processes that are easy, transparent, and personalized—turning a potential negative into a brand-building moment.

Real-World Impact: Retailers Leading the Way

Eileen Fisher: By implementing a consolidated inventory system across digital and physical stores, Eileen Fisher reduced returns and increased e-commerce sales by double digits. Store associates, equipped with mobile apps, can quickly locate inventory and process returns, improving both customer satisfaction and operational efficiency.
Carrefour: A new e-commerce platform with integrated returns management led to a 150% increase in conversion rate and record-high customer satisfaction. Enhanced supply chain visibility and optimized processes enabled faster, more reliable returns handling.
Loblaw: Strategic rollout of click-and-collect and express pickup locations not only improved order collection but also streamlined returns, putting 75% of Canadians within 10 minutes of a convenient location.

Publicis Sapient’s Approach: Returns as a Growth Engine

At Publicis Sapient, we view returns not as a necessary evil, but as a strategic opportunity. Our approach combines:

Data & AI: We help retailers harness data from every touchpoint—product, customer, supply chain—to predict, prevent, and optimize returns.
Process Innovation: We design and implement modern reverse logistics solutions, from dynamic routing to automated processing and sustainable returns models.
Customer Experience: We reimagine the returns journey as a loyalty driver, integrating omnichannel capabilities, personalized incentives, and transparent communication.

By treating returns as a core part of the customer experience and a lever for operational excellence, retailers can turn a trillion-dollar problem into a source of competitive advantage—driving profitability, loyalty, and long-term growth.

Ready to transform your returns strategy? Connect with Publicis Sapient to unlock the full potential of your omnichannel retail business.