Returns have always been an unwanted part of retail operations. Most retailers treat them as a necessary evil—a cost of doing business that drains resources and complicates inventory management. But what if returns could become one of your most valuable inventory sources?
With return rates averaging around 40% in apparel and returned merchandise totaling $890 billion in 2024, the scale of this untapped opportunity is staggering. Instead of viewing returns as losses, you can transform them into strategic assets that bridge the gap between demand and supply.
The traditional approach to returns management often focuses solely on the customer experience, creating digital journeys that satisfy customers but fail to capture the full value of inventory. This reactive mindset leaves millions of dollars in potential revenue sitting in limbo, often ending up as markdowns or waste.
The hidden cost of traditional returns management
Most retailers approach returns with a "one-size-fits-all" mentality, treating every returned item the same way. This creates several critical problems. Without linking returns to sales and planning, you lose insight into where inventory can be resold most effectively. The longer returned items sit in processing, the more their value decreases. For fashion retailers, who think in terms of “newness” rather than seasons nowadays, items that take weeks to process often miss their selling window entirely.
Without intelligent routing, returns often end up in locations where they cannot be sold quickly. Sometimes online returns are sent to the wrong location, such as a store that doesn’t stock the item or a distribution center when a store has a high demand. Traditional returns management also treats each return as an isolated incident, failing to capture and connect valuable data that could inform future buying decisions and supplier negotiations.
Reimagining returns as strategic inventory
Returns management solutions require a fundamental shift in perspective. Instead of treating returns as disruptions to your supply chain, consider them an integral part of your core inventory strategy. This means expanding your definition of available inventory to include not just what is in stores and distribution centers but also returns currently in process. When you integrate returns data with your broader inventory management system, every returned item becomes immediately visible and available for fulfillment. This real-time visibility allows you to make smarter decisions about where to route returns based on current demand patterns.
Advanced algorithms can analyze demand patterns, margin opportunities, and transportation costs to determine the optimal destination and outcome for each returned item. Instead of following predetermined routing rules, AI-driven systems adapt continuously based on real-time market conditions. Returns also provide valuable signals about product quality, sizing issues, and customer preferences. When this data feeds directly into your demand planning and buying processes, you can make more informed decisions about future inventory investments.
The technology foundation for returns optimization
Successful returns management requires integrated systems that connect reverse logistics with forward supply chain operations. This integration enables several critical capabilities. Real-time inventory updates ensure that returned items become available for sale immediately upon processing, rather than sitting idle in separate systems. Automated decisioning uses machine learning to determine the best outcome for each return—whether that is immediate resale, refurbishment, liquidation, or recycling.
Predictive analytics identify patterns in returns data that can inform everything from supplier negotiations to future product development. Guided processing workflows also help store and distribution center staff handle returns consistently and efficiently, reducing cycle times and improving accuracy.
