Free returns are not a given anymore, as retailers deal with rising costs

By Bill Peters

A surge in product returns through the pandemic is leveling off as retailers' generous return policies get 'harder to sustain,' a new report says

Shoppers visit the American Dream mall in East Rutherford, N.J., during Black Friday in 2022.

Through pandemic restrictions and afterward, product returns surged as retailers made it easier - and often free - for customers to bring back items they didn't want.

But as store chains juggle higher costs and tariffs, their return policies have become a little less forgiving.

A report from the National Retail Federation this week said the most generous return policies offered by retailers were getting "harder to sustain." And as stores start tighten up their return requirements via extra charges or other measures, customers could hold off a bit more on returning items this year, the report found.

The report said retailers expect 15.8% of their sales to come back as returns this year, amounting to $849.9 billion. That's slightly down from 16.9% last year, or $890 billion, the industry group said.

Katherine Cullen, the NRF's vice president of industry and consumer insights, said this year's trends represent a leveling off from previous increases in returns. In 2019, the annual return rate stood at around 8%; since then, it has roughly doubled.

She cited a few factors behind the expected dip this year. Retailers, she noted, have introduced tools to help consumers more accurately gauge things like clothing sizes, helping to reduce what they send back.

But she also said they are charging more for returns, in order to curb consumer behavior that has been pushing up retailers' costs and making heavy return volumes unsustainable.

"You're more likely to see an option that you might be charged for," Cullen said, as well as other changes that suggest "free returns are not just a given."

The NRF report found that 40% of retailers cited rising costs to process returns and higher shipping costs as among the top reasons they've charged customers for returns. One-third cited "economic uncertainty and risk of tariffs."

"During the COVID-19 pandemic, flexible returns became a competitive advantage," the NRF report noted. "Features such as extended return windows, no-cost shipping and instant refunds encouraged online shopping during a period of uncertainty.

"Now, however, those policies are proving harder to sustain as return volumes and the costs of reverse logistics, shipping and restocking grow," the report continued.

Retailers use return policies as a way to make consumers more comfortable buying things. When more people shopped in physical stores, processing a return was often a matter putting an item back on the rack.

But the rise of e-commerce has complicated that process. Lauren Beitelspacher, a professor of marketing at Babson College, said that along with the cost of using a truck to haul back returned items bought online, there are costs to pay the workers who open the boxes and scan items to put them back into a retailer's inventory.

Products set for return can ultimately spend weeks outside of a retailer's oversight. By the time a product comes back, it might be out of style. Most returned items, particularly those bought online, simply get thrown out rather than resold, Beitelspacher said, allowing the retailer to write off the items as waste.

"Our supply chain is designed to go one way. It is not designed to go backwards," she said. "Returns go backwards, and returns cost retailers a ton of money."

She added that higher tariffs this year presented their own complications.

"If you've sold this item and you've paid this premium tariff on it, and then you have to return it and you can't get the tariffed amount back, you've really lost a significant amount of money on that item," Beitelspacher said.

Higher costs of living over the past few years have squeezed consumers, and signs have emerged that tariffs have begun to nudge prices for some items higher. As consumers start shopping for the holidays, the NRF said it expects average spending per person on things like gifts, food and other seasonal items to slip 1.3%, from a record high last year.

Retailers have eaten some of the costs of tariffs to avoid charging consumer more. But Beitelspacher said there is a risk that consumers could return more products as they juggle higher prices and, thus, higher risks associated with purchases.

When the pandemic first hit, retailers were worried about whether customers would keep shopping, so many offered free returns to draw more online purchases. Since then, retailers have tacked on advance fees and placed stricter requirements on the receipts and product tags that consumers have to show to get something returned.

Some customers, retailers say, have also taken advantage of friendlier return policies. Wealthier customers might buy three clothing items online, decide which item they like, and then return the remaining two. There are also instances of return fraud - that is, sending back boxes without the item inside.

"We're just seeing a lot more interest in more precise or improved management of the return stack," said Tim Fehr, chief operating officer of Happy Returns, a company that assists customers and businesses with product returns.

Younger consumers, who grew up more online than previous generations, are also likelier than older generations to buy clothing and wear it once before returning it, the NRF report found.

Two-thirds of Gen Z shoppers, according to the report, said it was "acceptable to bend the truth when making a return, particularly if they're unsatisfied with the product or the store has a strict policy" - forcing retailers to adjust the way they prepare for returns.

"These guys grew up in the age of VC-backed indulgence, and everything is free and instant," Fehr said. "Their consumer behavior is different, and as they kind of become a larger portion of the market basket, their behavior becomes closer to the norm."

-Bill Peters

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10-17-25 1523ET