Rethinking Returns: The Invisible Battleground of Modern Retail

This Week’s Focus: Holiday Returns

As the holiday season unfolds, the surge of returns poses challenges for retailers and consumers alike. Companies like Amazon and REI are tightening their policies, while startups like Redo offer innovative solutions to give both sides peace of mind. This week, we explore how returns reflect the evolving retail landscape—balancing cost, customer satisfaction, and sustainability—and why rethinking and understanding return policies is more important than ever.

As the holiday season approaches, the joy of gifting and holiday shopping comes with a shadow: returns. 

From regrettable impulse purchases to ill-fitting or redundant gifts, millions of items will flow back into the retail ecosystem in a post-holiday ritual. The logistics of returns is costly, complex, and continuously evolving.

I’ve written about this topic in the past, stating that the current equilibrium of free and frictionless returns is not sustainable. 

And indeed, retailers are beginning to respond with a mix of innovation, policy tightening, and algorithmic precision. Some, like Amazon, are introducing friction into the process for frequent returners, while others, like REI, are outright banning customers who abuse liberal policies. Meanwhile, startups like Redo are redefining the space, providing scalable solutions to mitigate risks and costs. 

Let’s delve deeper. 

The Silent Revolution of Return-less Refunds

Returns are no longer just a logistical afterthought; they represent a significant operational challenge. 

In 2022, U.S. consumers returned $816 billion worth of merchandise, or 17% of total purchases—nearly double the rate from 2019. This surge coincides with the growth of e-commerce, where customers often buy without viewing or trying products in person, thereby increasing the likelihood of dissatisfaction.

For retailers, the cost of returns goes far beyond refunds. Shipping fees, restocking expenses, and markdowns on resold goods erode margins. Worse, many returned items end up in liquidation or landfills, amplifying environmental concerns. This dual economic and environmental toll has pushed retailers to explore new return models, balancing convenience with cost control.

Among the most intriguing trends is the rise of return-less refunds, where retailers refund the purchase price while allowing customers to keep the item. This quiet but significant shift is driven by the cold economics of logistics: it often costs more to process a return than to absorb the loss. A $20 T-shirt that costs $30 to ship back, or bulky items like furniture, often make a return process financially irrational.

Yet, the practice extends beyond low-value items. Some customers report receiving return-less refunds for goods worth hundreds of dollars, like furniture or electronics. Retailers rely on algorithms to determine eligibility, analyzing variables such as the cost of retrieval, the likelihood of resale, and a customer’s purchase and return history.

This strategy raises critical questions about consumer equity and the ethics of algorithmic decision-making. 

Are high-value customers disproportionately benefiting from return-less refunds? 

Does this create a tiered retail experience where less “profitable” customers face stricter policies? 

While return-less refunds offer operational efficiencies, their opaque nature fosters consumer confusion and potential dissatisfaction for those excluded from the benefit.

The Even More Silent Revolution of Complex Returns

While some retailers embrace leniency, others are implementing stricter return policies to curb abuse.

Amazon’s returns process, once celebrated for its simplicity, has become a symbol of the growing challenges in reverse logistics. The company’s efforts to balance cost control, efficiency, and customer satisfaction reflect a broader industry shift as e-commerce faces mounting costs from increasing return rates. While Amazon insists its system remains easy and customer-friendly, some shoppers experience frustration, prompting questions about whether subtle friction is being introduced to discourage returns.

A recent Atlantic article documents a customer’s recent attempt to return two sets of rope-woven storage cubes: At a Whole Foods self-service kiosk, he found that the poly bag was not big enough to fit both items, and with a line forming behind him, he left to regroup at home.

Returning later, the customer separated the returns into two transactions but mistakenly reused the same QR code for both items. This rendered the return invalid, triggering a frustrating series of steps to resolve the issue.

Reflecting on his experience, he notes, “Didn’t this used to be much easier?”

Adding to the complexity, the customer received follow-up emails from Amazon warning that items were unaccounted for, despite being returned. These notices, while meant to ensure compliance, contributed to a growing sense of frustration.

Jacob Feldman, a professor at Washington University in St. Louis is quoted in the article suggesting that adding minor inconveniences might deter unnecessary returns. As he explained, “They might want it to seem like they’re making returns easier when it’s actually harder.”

This friction might include:

Increased procedural complexity: Customers must now carefully separate returns by item and label, as mishandling barcodes or packaging can derail the process.

Expanded drop-off options: When offering variety, customers may become confused by multiple options, especially when rules differ between locations.

REI, a cooperative known for its generous return policies, has taken even bolder steps. In 2023, they banned a small subset of members—those with a return rate of 79% or more—from making any further returns. This group, representing just 0.02% of their customer base, accounted for significant financial losses due to their ability to abuse the system.

These policies highlight a growing tension in retail. On one hand, consumers expect flexibility and convenience; on the other, retailers must protect their bottom lines. The use of data-driven tools to identify abusers underscores the role of analytics in modern retail but also raises concerns about fairness and transparency.

Return Innovations: The Redo Model

In a space with so many challenges it makes sense that firms will continuously innovate. Companies like Redo are introducing solutions that reduce the burden on both retailers and consumers. 

Redo automates the return, exchange, and credit process, allowing retailers to focus on growth while minimizing logistical headaches. And while there are many firms that already do this— including Loops and ReturnGo (where I’m an investor)—Redo’s model charges a small fee (typically under $5) offering customers their peace of mind, while allowing retailers to offload their financial risk:

Why does it work?

Cost-Effectiveness for Retailers: By eliminating return shipping costs and converting a portion of transactions into premium revenue, Redo aligns incentives for both retailers and customers.

Simplicity for Consumers: The predictable, low-cost premium reduces friction in the buying process, especially for high-ticket or bulky items.

The Psychology of Returns: Persuasion and Regret

But let’s dig even deeper. 

Returns are not merely logistical; they are deeply psychological. 

The paper “The Effects of Pressure and Self-Assurance Nudges on Product Purchases and Returns in Online Retailing: Evidence from a Randomized Field Experiment” highlights the fact that shopping behaviors driven by pressure tactics—such as limited-time offers or social proof—often lead to buyer’s remorse and higher return rates. Conversely, self-assurance nudges—which help customers validate their choices—result in fewer returns and higher satisfaction.

The study examines how different types of nudges—pressure-based nudges (e.g., scarcity and social persuasion) and assurance-based nudges (e.g., choice validation and fit verification)—impact online retail outcomes, particularly product purchases and returns. While pressure-based nudges have been widely employed to boost sales through urgency and social cues, little research has explored their long-term effects, such as return rates, which significantly affect retailer profitability. Conversely, assurance nudges aim to help consumers make more informed decisions, potentially reducing costly returns. The study is motivated by the need to address the gap between short-term sales strategies and their implications for operational efficiency and consumer satisfaction.

The researchers conducted a large-scale randomized field experiment with 5,938 consumers in collaboration with a leading Asian fashion retailer. The experiment tested seven conditions: three pressure-based nudges (quantity scarcity, time scarcity, and social pressure), three assurance-based nudges (choice assurance, style-fit assurance, and size-fit assurance), and a control group with no nudging. The setting involved a drop marketing campaign for limited-edition fashion items—categories prone to high return rates (up to 40%).

The key findings are quite interesting. 

Sales Impact: Pressure-based nudges increased sales by 2.2 times compared to the control group. Assurance-based nudges boosted sales by 1.9 times, slightly lower than pressure-based nudges but still significant.

Return Rates: Returns were 69.3% lower for assurance nudges compared to pressure nudges. Pressure nudges, particularly time scarcity, were associated with a fourfold increase in late returns—the costliest for retailers.

Return-Adjusted Sales: When considering returns, assurance nudges were as effective as pressure nudges in net sales, demonstrating their long-term economic advantage.

Consumer Behavior: Pressure nudges led to impulsive shopping behaviors characterized by lower search intensity and shorter shopping durations, increasing the likelihood of returns. Assurance nudges encouraged deliberate decision-making, resulting in fewer returns and higher satisfaction.

Moderating Effects: New customers and mobile users were more susceptible to the negative effects of pressure nudges, such as higher return rates, due to limited ability to evaluate products under pressure.

While not exactly the same, the findings from this research align closely with Redo’s business model, by providing customers assurance that they are guaranteed a hassle-free return policy. While many places claim this to be true, Amazon’s example shows that this is not always the case, even when promised. 

Smart Green Nudging and its Implications for Returns

As mentioned above, the environmental impact of returns is another critical issue. 

Items that cannot be resold often end up in landfills, contributing to waste and emissions. The rise of fast fashion and single-use goods exacerbates this trend, creating a cycle of consumption and disposal that is environmentally unsustainable and destructive.

Some retailers are addressing this by encouraging donations instead of returns. Chewy allows customers to donate unwanted items to local shelters, reducing waste while supporting community organizations. These practices, while still niche, highlight the potential for more sustainable return policies.

The paper “Smart Green Nudging: Reducing Product Returns Through Digital Footprints and Causal Machine Learning” explores whether green nudging—informing customers about the environmental impact of product returns—can reduce returns without harming sales. 

The study’s motivation lies in addressing the dual problem of financial and environmental costs as a result of increasing e-commerce returns. Traditional return policies, like imposing restocking fees, often backfire by alienating customers. This research seeks a more nuanced solution that aligns business interests with sustainability goals.

The researchers conducted a large-scale randomized field experiment involving 117,304 customers of a European fashion retailer. 

Two green nudging interventions were tested:

Cart Prompt: A message during checkout highlighting the environmental impact of returns.

Reminder Prompt: A post-purchase message encouraging customers to commit to reducing returns.

The study also employed Causal Machine Learning to personalize green nudging based on customer characteristics, such as shopping behavior and digital footprints. This allowed the researchers to identify heterogeneity in customer responses and evaluate whether a targeted approach could amplify the intervention’s effectiveness.

The key findings are quite interesting:

Impact of Green Nudging: The dual nudge (cart + reminder) reduced return rates by 2.6%, translating to annual cost savings of $340,000 for the retailer and a profit increase of 8.7%. The intervention cut return shipping by 624,000 metric tons of CO2, equivalent to the annual electricity usage of 121,000 U.S. homes. Importantly, sales remained unaffected, dispelling concerns that nudging would deter purchases.

Causal Machine Learning Insights: 60% of customers responded positively to green nudging, reducing returns by an additional 3.2% when targeted with personalized interventions. Conversely, for 40% of customers, nudging backfired, increasing returns—likely because it inadvertently reminded them of return options. Nevertheless, smart green nudging targeting only responsive customers, doubled the effectiveness of the intervention, cutting return rates by 5.2% overall.

This study highlights the potential of combining behavioral science and machine learning to tackle this complex issue. Platforms like Redo are well-positioned to operationalize these insights at scale, driving both business success and sustainability. By integrating green nudging principles and leveraging predictive analytics, Redo can become a leader in the evolving returns landscape, offering smarter solutions that resonate with modern consumers.

For me, this study is very reassuring! I’ve always insisted (and written) that the solution must start with us, the consumers, caring about the impact of returns, and it behooves retailers to make us aware of it. Back then, I was mocked by the marketing experts on the fact that it will never work. I’m not petty…but here we are, two years later, reading this study. 

The Future of Returns

The evolving landscape of returns reveals a deeper transformation in retail. Retailers that manage to strike the right balance between cost control, customer satisfaction, and sustainability will emerge as leaders in this new era.

For consumers, the challenge is equally nuanced. As retailers tighten policies and introduce fees, understanding return terms will become essential. Thoughtful shopping, coupled with awareness of return policies, will be critical in navigating a system increasingly shaped by data and technology.

In this season of giving—and giving back—returns should be more than an afterthought, as they reflect the broader dynamics shaping modern retail: the interplay of economics, psychology, and sustainability. 

As we return what we don’t need, it’s worth considering what the process reveals about the changing nature of how we shop—and how we live.