Returns Are Wrecking Your Margins—And Most of You Are Making It Worse

Let’s talk about the part of e-commerce no one brags about: returns.

Everyone’s obsessed with getting the sale. Optimizing checkout. Reducing cart abandonment. But what happens when that perfectly optimized order comes right back? What happens when 20 to 30 percent of your products boomerang, eating into margins, clogging up warehouses, and turning your logistics team into a damage-control unit?

It’s not uncommon for brands to throw millions at customer acquisition, only to lose those same customers because their return process is a disaster. And the worst part? They don’t even realize it.

“Most companies are just bleeding money on returns, but they don’t dig into why it’s happening,” says Johann Diaz, Founder of Service Revolution Academy. “They try the usual moves—tighten up policies, add a fee, make customers jump through a few more hoops. But guess what? If your return process still sucks, none of that matters. Customers won’t come back.”

That’s not a minor issue. That’s a slow bleed.

Why Returns Are Out of Control—And Why Most Fixes Don’t Work

Returns aren’t just a logistics issue. They’re a symptom of deeper problems—product design, marketing, customer behavior. If people keep sending stuff back, it’s not just because they’re fickle.

Take the example of one global fashion retailer I know, who I can’t name, but I will say there is a good chance you or someone you know shops with them. Customers would order three sizes, keep one, and send two back. Their solution? Make returns harder – shorten the window, add a restocking fee, require original packaging.

It backfired. Massively. 

Return rates barely changed, but customer satisfaction nosedived. Negative reviews piled up. And their highest-value customers – the ones who spent the most – started shopping elsewhere.

Compare that to say, Patagonia, which actively encourages returns because they’ve built a resale business out of them. Or IKEA, which turns old furniture into a new revenue stream through its ‘Buy Back & Resell’ program.

“The best brands don’t just fix returns,” says Diaz. “They use them. That’s where most companies get it wrong. They see a problem. The smart ones see an opportunity.”

The Left-Field Take: What If Making Returns HARDER Was the Right Move?

This is where it gets interesting. Everyone assumes easier returns = happier customers. But what if that’s wrong?

Zara, another fashion retailer, bucked the trend entirely and actually started charging return fees. 

Not to make money off them but to make customers rethink impulse purchases. And guess what? It worked. Returns went down, waste was reduced, and margins improved—without a mass customer revolt.

For some brands, easy returns are the problem. If customers know they can send something back for free, no questions asked, they’ll buy with less intent. That means more waste, more logistics costs, and more inventory headaches.

So no, not every company should follow Amazon’s playbook. Some should take a page from Zara instead. Charge for returns in certain cases. Offer store credit instead of cash refunds. Reward customers who bundle returns instead of shipping them back piecemeal.

“Amazon’s got their way of doing things,” Diaz says. “But that doesn’t mean it’s right for everyone.”

The Curveball: What If You Should Be Encouraging Returns?

Now, here’s the flip side. 

To really drive home that when it comes to returns, there is no one-size-fits-all approach, we must also acknowledge that some brands shouldn’t be reducing returns at all – they should be leaning into them.

Think about Apple. Nordstrom. Costco. 

These companies don’t just accept returns; they weaponize them. They know that when customers feel zero risk, they spend more. They buy the extra item. They come back again and again.

“I’ve seen brands loosen up their return policies and – boom – sales jump,” Diaz says. “Customers just don’t hesitate as much when they trust they won’t get stuck.”

For luxury, high-end electronics, or to be frank, any product where trust is key, a great return policy isn’t a cost—it’s a growth driver.

So, which camp are you in? The one that needs to tighten up returns to control waste? Or the one that should be making them even easier to drive sales?

The Tech That Separates the Winners from the Losers

The brands that win in returns aren’t winging it. They’re using tech to turn a pain point into a strategy.

AI-driven size guides and virtual try-ons cut returns before they happen. Automated routing keeps warehouses clear by sending products straight to resale, refurbishment, or donation. Real-time tracking reduces “where’s my refund?” support tickets.

“The future of returns isn’t just about making it faster,” Diaz says. “It’s about making it work for the business instead of against it.”

Returns Aren’t Your Problem—The Way You’re Thinking About Them Is

Most brands are focused on reducing returns. Maybe that’s the wrong goal.

What if, instead of minimizing returns, you made them so good that customers wouldn’t dream of shopping anywhere else?

Apple, Nordstrom, and Costco don’t lose sleep over returns. They bank on them.

The real question is—are you treating returns like a necessary evil, or are you using them to build something better? Because while most of your competitors are still trying to fix the problem, you could be turning it into an advantage.