Retail Returns: Policies, Management & Optimization (2025)

When a customer takes an item they bought back to the store, it’s called a retail return. They might get their money back, receive store credit, or exchange it for a different item. 

Returns are a natural part of running a retail business. Research from The National Retail Federation (NRF) shows that shoppers returned $890 billion in merchandise in 2024, with the average retailer contributing nearly 17% of their sales to that figure.

Retail returns management comes with operational challenges, like addressing customer concerns, handling reverse logistics, and managing data—but these challenges don’t have to slow you down. With the right tools, you can keep returns easy and friendly for customers without sacrificing profitability or efficiency.

Unsure how to handle returns in your retail business? This guide will help you craft a return policy, streamline the process, and keep up with customer expectations.

The importance of retail returns management

Returns are often an overlooked part of running a business, but have a huge impact on your brand. Two-thirds of retailers plan to upgrade their returns capabilities over the next six months. Here’s why. 

Satisfy sales objections

Consumers have plenty of retailers to choose from when shopping, and one of the factors they consider is whether an item is easy to return. 

Up to 82% of online shoppers check a retailer’s return policy before they buy. Crafting a return policy shoppers trust makes them feel more confident buying from you. 

Customer loyalty and lifetime value

The vast majority of customers say they are more likely to return to a business with a positive return policy. Get it wrong and you risk losing shoppers you’ve already worked hard (and in most cases, paid) to get. 

Additionally, for most merchants, top customers make up a big chunk of sales. These customers often have the highest return rates—but that’s because they love shopping with you and trying new products and styles. By making returns easy, you encourage them to shop even more frequently, ultimately increasing their overall spend.

“We’re always looking for ways to create fewer pressure points for customers,” says Alexandria Collis, director of operations at Princess Polly, on the brand’s migration to Shopify POS. “Making returns difficult shouldn't be the goal—there's actually a real opportunity to create loyalty through the return experience.”

Brand reputation and perception

Bad experiences can spread quickly. Taking steps to reduce returns and offering flexible policies can noticeably improve how shoppers feel about your brand. If you handle returns with care, you encourage customers to recommend you.

Environmental impact and sustainability

Returns can create a heavy carbon footprint. Alternative refund methods, like returnless refunds and buy online, return in-store (BORIS), help reduce environmental impact, save on shipping costs, and appeal to eco-conscious shoppers. 

How to write a retail return policy

It’s tempting to create a return policy that states all returns must be made within 14 days of purchase, and only store credit is issued. But the easy way out doesn’t always help build customer loyalty. Here’s how to write a return policy that works for your customers and your bottom line.

1. Know your buyers and product specifics

A return policy should make sense for the people who shop with you. For example, if you sell products for kids, your buyers might be parents, grandparents, and other gift-givers. Remember, people might return items for a variety of reasons, including gifts that don’t work out.

You should also tailor your return policy based on what you sell. Give a little extra leeway for items that are tricky to size correctly, like women’s bathing suits, as long as the hygiene seal is left intact.

2. Choose a reasonable returns window

It’s important to find the right balance between keeping your customers happy and effective inventory management. Be realistic from a business standpoint while still being fair to your customers. 

To identify the returns window that best suits your store, consider: 

• How fast does your inventory typically sell? Do you usually sell items within a 60-day cycle, or do products sit in stock longer, like three or even six months? The faster you turn inventory, the harder it is to offer a long return window.
• Are you able to easily reorder popular items? Inventory availability from vendors can affect your return window. If a hot item sells out and cannot be reordered, you might need to adjust your return policy. 
• What do your biggest competitors offer? If your direct competitors offer a more flexible return policy, it might influence whether shoppers pick them over you. 

Naturally, some exclusions may apply, especially during the holiday season when return rates peak. Some retailers extend their standard return window during this time to accommodate gift shopping. 

If a customer buys a product in November to give as a Christmas gift, for example, extending your return window to 60 days gives them enough time to bring it back if it isn’t the right gift.

3. Include the right terms

A formal policy helps you communicate your return process clearly to customers and employees. It’ll help you handle returns consistently, instead of dealing with each situation individually. 

Policies aren’t set in stone. You can adjust them based on your business and the products you sell. But you’ll want to cover the basics:

• What items can be returned
• What items can be exchanged
• What products are “final sale” (i.e., non-returnable, non-exchangeable)
• How long customers have to return or exchange items (i.e., 30, 60, or 90 days after the purchase date)
• Acceptable condition for returned items (i.e., lightly worn, with tags still on, original packaging, original condition, etc.)
• What documentation is needed to process returns (i.e., a retail receipt or email confirmation)
• How you’ll handle returns (i.e., store credit, refund, a product of equal value, etc.)
• How customers initiate a return or exchange (e.g., an email address to contact or a web page to visit)

👉 Use Shopify’s Return Policy Generator to easily create a clear, customer-friendly policy for your store.

How to make retail returns frictionless

Many merchants are understandably hesitant about making returns frictionless for customers. However, most buyers don’t decide to return an item because the return process is easy—they do it because the purchase didn’t work out.

When customers trust that returning a purchase won’t be a hassle, they're more inclined to shop with you more often, spend more, and feel better about buying. Here’s how to make it happen.

Choose an omnichannel returns management software 

An omnichannel process makes returns easier for customers, whether they shop online, in-store, or both. It gives people the choice to return items in the most convenient way, either by visiting your store or mailing the products back. This can help improve exchange rates, conversion rates, and revenue.

The right tools make it simple to deliver a seamless omnichannel return experience while also making the retail management process more efficient. 

Some top Shopify apps for speeding up returns, both in-person and online, are:

• Parcel Panel
• Loop Returns & Exchanges
• AfterShip Returns Center

💡Tip: Shopify unifies customer, order, and inventory data wherever you sell. This unified commerce approach simplifies the experience without your retail team having to learn a new return system. They can view a customer's profile, see the items they've bought online, and issue a refund right back to their original payment method from the POS dashboard.

Automate your return and exchange flow 

Automating returns creates a seamless experience for both you and your customers, and gives your team more time for other priorities. 

Tools like Shopify Flow can help you:

• Notify your team in Slack when a customer initiates a return for a high-value order 
• Restock returned items as soon as they’re marked “received”
• Send an upsell or cross-sell email after a return is processed
• Auto-approve low-risk return requests
• Block new orders from serial refunders

Automating exchanges also creates an experience closer to in-store purchases, where an associate helps shoppers find the right color and size. For example, you can proactively offer exchanges based on the shopper’s return reason, or automatically display alternative sizes or colors, depending on available inventory.

Empower your retail team with return automation tools

While automation can ease your workload, returns sometimes present unique scenarios that require careful judgment from your retail team.

For example, you may want to make exceptions to your return policy—whether that’s allowing a shopper to return after the designated return window or accepting special returns from VIP customers. Make sure your team has clear guidelines—and the right tools—to handle these situations. 

Offer sustainable return options

Consumers prefer to buy from retailers with sustainable business practices. Returns offer an opportunity to go green, so consider offering returnless refunds for low-value items to reduce unnecessary shipments.

Another great way to make your returns eco-friendly is by grouping items into cardboard-free reusable boxes at a third-party location and shipping them in bulk. This reduces your shipping costs and significantly cuts emissions and fuel waste.

Offer multiple convenient return methods

Most retailers offer several delivery options, including expedited shipping. The same idea applies to exchanges and returns.

Give your customers multiple methods for returning, beyond the hassle and wait of doing so by mail. That could mean returning items directly to your stores or dropping them off at a third-party location. Neither of these options needs a box or label, and both offer customers an immediate refund or exchange.

Provide a free return option

Shoppers increasingly expect at least one free way to return an item, so it’s worth considering if you can offer this.

If you have brick-and-mortar locations, you can easily provide free returns at your stores. But even merchants who only sell online can offer free in-person returns by using third-party networks as drop-off points. This way, merchants can make their free return option the most cost-effective approach. 

Keep your return policy clear and simple

With a clear return policy that leaves no room for confusion, your shoppers know exactly what to expect, meaning fewer frustrated customer service calls down the line. 

A simple policy also helps customers avoid comparing your policy to competitors.

Limit returns with clear product information

When it comes to making returns frictionless, start by providing information that prevents returns from happening in the first place. For example, clear size charts can help shoppers choose correctly—and size issues cause 52% of returns.

Similarly, mark final sale items and include customer reviews of your products. This helps shoppers feel confident before they buy. 

💡Tip: Shopify POS pulls data from your ecommerce platform to ensure customers get the same consistent information wherever they shop. Store associates can retrieve product specifications on their POS devices to provide product knowledge without having to memorize product details.

Maintain a positive customer experience

Every retail store needs a return policy to set clear expectations for shoppers and protect against issues like return fraud. 

However, that doesn't mean your return policy should make things harder on customers. Be reasonable with your return timeframe and be flexible about the documentation required (receipts, tags, etc.). 

The most important thing you can do to maintain a positive customer experience is simply to show empathy. Train staff to ask how they can make it right, especially if poor quality caused the return. Show them how to complete returns quickly and easily, so customers never have to wander around looking for help.

How to convert returns into exchanges: A strategic approach

The fewer returns you have to handle, the less of a financial drain they'll be on your business. Here's how to convert refund requests into exchanges instead.

1. Ask the right questions

To make the right exchange recommendation and give customers a positive experience, you need to understand exactly what they need. That means asking more than the standard, “Was there a problem?”

Train retail staff, or add a line to your return merchandise authorization (RMA) request form, to ask:

• Why is the customer returning the item? When the reason isn’t clearly about product quality, customers may not immediately offer much detail. But these are vital details that enable your staff to make the best recommendations for an exchange. For example, a customer returning a pair of jeans because they didn't like the slim fit could get a recommendation for a wide-leg alternative. 
• What expectations did the product fall short on? This can help staff understand where the disconnect between customer expectations and the actual product lies. 
• How did you plan to use this item? The product may not be designed for the customer’s needs. Knowing this helps staff recommend a better option. And if multiple customers aren’t clear on an item’s use, this may indicate you’re not marketing it effectively, or that its product description page needs an update.

💡 Tip: Shopify creates a unified customer profile each time someone shares their contact details with your business. When someone initiates a return, you can consult this profile to learn more about their shopping habits—like whether they're a serial returner or often buy multiple sizes of the same item—to personalize the exchange recommendation. 

2. Practice active and empathetic listening

Listening sounds easy, but active listening—really understanding, not just responding—can be challenging. It’s an important retail skill for you to cultivate in your staff. 

Here are a few tips that can help:

• Cut out distractions. Pay attention to what customers are saying by avoiding multitasking and maintaining eye contact while they speak.
• Show that you're listening. Stop what you're doing to listen, nod, smile, and use your body language to show you’re receptive to what customers are saying.
• Respond. Don't think about a response until the customer has finished speaking. Once they have, rephrase what you heard and ask follow-up questions to fully understand the situation and show the customer you’ve been listening.

3. Cross-sell and make recommendations

Spend enough time training staff on your products and ways to cross-sell that truly benefit customers. Teach them product groupings that often go together. Above all, train your retail staff on creative problem-solving to offer thoughtful product suggestions that encourage customers to choose an exchange over a refund.

How to reduce retail return rates

Share accurate product information

Online shoppers rely on product descriptions, images, sizing information, and reviews to make informed decisions, and they’ll return items that don’t meet their expectations. 

Invest in high-quality product photos, videos, and descriptions to give customers a realistic sense of your products. Around 39% of online shoppers return products because they don’t look like the image. 

The same applies to in-store sales. Use digital screens or QR codes to guide in-person shoppers to size guides, product specifications, and material or ingredient details on your ecommerce website. This lets shoppers easily find the details they need without having to track down a salesperson. 

Offer samples or ‘try before you buy’

Free samples or a ”try before you buy” option can help reduce returns because people won’t have to buy it first to use it. KIAURA Eyewear, for example, lets customers choose up to five pairs of sunglasses to try on at home, enabling them to select the one that best suits their style. 

Just be aware that a sampling program can come with extra costs, including fulfilling smaller orders and the lost revenue potential if customers choose not to buy the full set. Analyze the customer journey to see whether customers really need to try a product before they buy it. Sometimes the cost of a free sample outweighs the cost of processing a return later on. 

Implement augmented reality

If you don’t want to invest in a free sample or a “try before you buy” program, augmented reality (AR) can achieve the same effect. It’s a technology that overlays a 3D model of your product onto a customer's camera feed, letting shoppers see how it looks in their space before buying. 

Take Gunner Kennels, for example. Customers struggled to decide which size crate was best for their dog when browsing their online product catalog. So, the brand used Shopify’s AR toolkit to create 3D versions of each product. Now online shoppers can virtually place the crate beside their dog to check the size—a move that’s reduced return rates by 5%. 

“3D models have served as a tool to further bridge the gap between a retail experience and online,” says Macey Benton, VP of marketing at Gunner Kennels. “As we see higher adoption rates with the models, we are also seeing lower return and exchange rates.”

Crack down on return fraud

Brands lost a collective $101 billion to return abuse last year. Typical forms of return policy abuse include:

• Wardrobing, when a shopper buys an item, uses it, and later returns it
• Receipt fraud, when the shopper produces a counterfeit receipt to get a refund 
• Returning stolen items, when stolen products are returned for a refund 

Use return fraud prevention strategies to prevent revenue loss from fraudulent returns. Watch for serial returners—perhaps only offering like-for-like exchanges for these customers, or blocking them from placing future orders altogether. 

Track retail return data 

By analyzing patterns in shoppers’ return and exchange activity, you can identify the products most often returned and understand the reasons behind those returns. This lets you fix issues before they cause more returns.

Track the following metrics to benchmark your current returns strategy:

• Return rate: The percentage of orders or products that are returned by the customer. Watch how this changes as you make improvements—like updating product photos if customers say items don't match the images online. 
• Cost per return: Returns often cost you extra, such as shipping, processing, and even restocking fees. If items are broken or single-use only, you can’t even resell them. Those costs can quickly add up.
• Exchange rate: The percentage of customers who opt for an exchange instead of a cash refund. The higher this is, the better—exchanges keep money in your business by swapping one product for another. 

💡Tip: Because Shopify unifies data across all your sales channels, you can run detailed reports to analyze how returns affect your business. Track return rates by product, sales channel, or retail location to dive deeper into how—and why—customers initiate a return. 

The future of retail returns and exchanges

Returnless refunds: Operational efficiency and savings

Returnless refunds let customers get money back for low-value items without having to return them. Amazon was the first to introduce this practice in 2017, and now many retailers use it to reduce costs associated with returns and improve customer satisfaction.

Returnless refunds are often cheaper for retailers than having customers ship items back, which can cost up to 65% of the sale price in logistics and processing. For a $10 t-shirt, a retailer might offer a returnless refund to save on those costs rather than paying $7 in shipping. 

Returnless refunds make things easier and faster for shoppers, too. They don’t have to wait for items to be returned before getting their money back.

Leveraging returns for upsell opportunities

Consider offering shoppers who return a purchase the option to exchange their order for a gift card of equal value. If they use the gift card the same day, they get a percentage off their purchase. Savvy merchants are using this tactic to reduce losses from returns and make the return process feel more positive for customers. 

Accurate reporting for online and in-store returns

One mistake omnichannel retailers make is deducting the value of online sales that are returned in-store from their physical store’s revenue. This unfairly penalizes the retail store for being the most convenient place for shoppers to return their orders. 

If left unchecked, this reporting mistake can lead to an inaccurate understanding of your store's contribution to overall revenue. Fix it by deducting online orders returned in-person from your online store's revenue, instead of penalizing your retail store. 

The role of reverse logistics in retail returns

Reverse logistics is the process of receiving, sorting, and reclassifying merchandise returns. The faster you handle this, the better. Quick turnaround times reduce “When will I get refunded?” questions, while also putting inventory back on your shelf sooner. 

But as more customers focus on being sustainable, think about how you can optimize the reverse logistics process:

• Use reusable or recyclable packaging.
• Encourage shoppers to make returns in-store to reduce transportation emissions.
• Have customers send returns to local warehouses, then ship items back in bulk to reduce emissions and costs. 

Embracing the circular economy in returns

Retail returns have a big impact on the environment. In the US alone, returns create over five billion pounds of landfill waste and contribute 15 million metric tons of carbon emissions annually. 

The circular economy model goes beyond refunds and exchanges, using more sustainable methods like repair, resale, recycling, and repurposing. 

Let’s put that into practice with an example: A customer wants to return a $9 t-shirt they bought in the wrong size. Instead of asking the customer to ship it back—costing more than the shirt’s resale value after handling—the retailer could offer a returnless refund and suggest the customer donate the item to a local nonprofit.

Optimize returns for your retail customers

Customer returns and exchanges are part of the deal when you run a retail store, but they don’t have to hurt your bottom line. By practicing empathy, training staff, and addressing the underlying causes of returns, you can delight customers and boost your profits. 

Shopify has everything you need to handle returns across all channels, without complex systems that frustrate your team. As the only platform to fully integrate POS and ecommerce, you have one central “brain” to handle returns everywhere you sell—no complicated integrations needed. Retailers who use Shopify see real results, according to a recent EY report:

• Reducing total cost of ownership by 22%
• Seeing an average 8.9% uplift in GMV
• Saving 89% on annual third-party support costs

“Having everything on one system means that we can get to know our customers better and what they want,” says Maximilian Gnann, showroom manager at Ryzon. “We can constantly improve as a brand as well. Shopify POS is simple to use across channels, and it is very easy to transact on.”