Return Management in E-Commerce: How to Reduce Your Return Rates

Returns in e-commerce are neither sustainable from an ecological nor an economic perspective. That’s why more and more online retailers are seeking ways to lower their return rates. In this deep dive, you’ll learn how efficient return management can improve your financial performance, streamline warehouse processes, and reduce your environmental footprint.

Return Rates in E-Commerce: An Industry-Wide Challenge

E-commerce without returns? For most consumers, this is unimaginable. Returns are seen as a convenience: when a product doesn’t meet expectations, customers expect a seamless, free return process with quick refunds.

On the retailer’s side, smooth return processes are equally important. When everything goes smoothly post-purchase, it enhances customer loyalty. In fact, over half of online shoppers are more likely to stick with a retailer offering free returns. A similar trend applies to new customers: almost 40% of shoppers avoid stores that don’t offer free return options.

However, returns come with challenges for e-commerce businesses. Every returned item requires processing and storage, whether for resale or disposal, which increases costs and slows productivity.

In industries like fashion, where returns are frequent, these challenges can quickly erode profitability. No wonder three-quarters of retailers aim to improve their return management and reduce return rates to remain competitive, according to EHI Retail Institute.

How to Calculate Your Return Rate

The return rate (RR) is calculated using the following formula:

Return Rate (%)

(Number of Returns / Number of Items Sold) × 100

For example, if you sell 100 items and 20 are returned, your return rate is 20%. The key question is: what return rate is acceptable, and when should you consider optimizations?

What Are Average Return Rates in E-Commerce?

Germany leads Europe in return rates. In 2021, German consumers returned every fourth order partially or completely. Retailers in Germany processed approximately 530 million returned parcels containing 1.3 billion items that year.

This high volume is partly due to consumer-friendly regulations and the fact that nearly 90% of German retailers offer free returns, compared to just over 50% in the rest of Europe.

Returns in Fashion: The Highest Return Rates

Return rates vary by industry and product type. Most e-commerce sectors, such as food and beverages, see average return rates between 1% and 5%.

Fashion and accessories, however, are outliers. In this segment, 26% to 50% of items are typically returned, with some cases reaching up to 75%. Remarkably, 91% of the 1.3 billion returned items in 2021 came from the fashion industry.

The reason? Consumers frequently order clothing, shoes, and accessories in multiple sizes or colors and only keep what fits or appeals to them.

The Cost of Returns: Financial and Operational Impact

Returns significantly impact your bottom line and warehouse operations. The average cost of processing a return ranges between €5 and €10 per item. For bulky or expensive items, such as furniture, costs can rise to €10–€20 per item.

Top 5 Return Cost Drivers:

Inspection and quality control of returned items
Shipping and transportation costs
Processing and identification of returns
Depreciation of items no longer sellable as new (A-grade)
Preparation, cleaning, and repair of goods

Impact on Warehouse Processes

Returns don’t just increase costs—they also disrupt inventory management and product availability. Each returned item requires:

Extensive transportation
Time-intensive processing and inspection by employees
Storage until resale or disposal

Inefficient return handling or backlogs in processing can lead to inventory mismanagement, impacting warehouse resources and profitability.

Environmental Impact

Returns contribute to additional transport emissions and packaging waste. Over 80% of consumers are unaware of how significantly returns affect the environment.

A study by the University of Bamberg revealed that a single returned item produces approximately 1.5 kg of CO₂ equivalents. With 530 million returns in 2021, the total carbon footprint equates to 5.3 billion car kilometers. Every avoided return makes a meaningful contribution to climate protection.

Customer Satisfaction

Returns are an integral part of the post-purchase experience. Even if a customer’s journey is seamless until the return stage, inefficiencies—such as delays in refunds—can discourage future purchases.

By simplifying and optimizing your return process, you enhance the overall customer experience. This translates to higher customer retention, as 92% of buyers would shop again from a store with a smooth return process.

How to Simplify Return Processing in Warehouses

To minimize return rates, consider the following strategies:

Detailed Product Descriptions: Offer size guides and accurate product details to prevent mismatches.
Efficient Back-End Processes: Streamlined warehouse operations are critical for reducing costs and improving customer satisfaction.

Key strategies:

1. Implement a Returns Portal

A digital returns portal provides customers with more control and gives you better oversight. This allows you to anticipate return volumes and optimize your processes accordingly.

2. Analyze Return Reasons

Returns portals enable you to collect insights into why items are returned. Use this data to improve product descriptions and resolve recurring issues. For example, if a product is frequently returned for being too large, highlight this on the product page.

Develop Refurbishment Strategies

Efficient return handling involves classifying items into:

A-grade: New and ready for resale
B-grade: Requires refurbishment
C-grade: Damaged or incomplete

Refurbishment strategies for B- and C-grade items ensure efficient processing. With upcoming EU Ecodesign regulations, sustainable options such as selling to third-party recyclers may become mandatory.

Leverage Analytics

Comprehensive data analysis helps refine your processes. Key insights include:

C-grade costs: Identify opportunities to reduce waste and convert returns into sellable items.
Supplier performance: Monitor if certain suppliers contribute to higher return rates.
Carrier performance: Evaluate shipping providers to minimize logistics-related returns.
Return rates by country: Optimize product offerings and campaigns for international markets.

Automate Return Handling

Automation and a robust fulfillment partner can help you optimize return management. Unsure if your current provider meets your needs? Use this checklist to evaluate them.

A partner like Zenfulfillment offers tailored solutions for e-commerce businesses. With their operating system and integrated returns portal, you can automate refund processes and gain valuable insights.

For example, fashion brand Hey Marly improved their return process with Zenfulfillment (formerly Alaiko), automating refunds for nearly half of all returns.

About the Author

Zenfulfillment – We believe that shipping in online retail – especially beyond established online giants – should be much faster, more transparent and smoother.

Our mission is to democratize access to outstanding logistics infrastructure for online retailers by providing them with an end-to-end solution that scales with their growth.

Our vision is to improve the lives of people around the world through a delivery experience they love by providing them with fast, affordable and predictable access to products purchased online.