A Reflection on Peak Returns Season

Every January, retailers brace for “peak returns season,” the post-holiday rush when millions of dollars’ worth of merchandise flows back into supply chains. This year was no exception, highlighting ongoing challenges in reverse logistics, including rising returns fraud and mounting environmental costs. As merchants analyze holiday performance, one question looms: How can they refine returns processes to enhance efficiency, combat fraud, and mitigate environmental impact?

Data from this season pinpoints key hurdles, including the cost of returns shipping (47%), evaluating returns quality (42%), processing returns (39%), effectively reselling returned goods (37%), and maintaining customer satisfaction (31%).

Returns fraud: A growing threat

Returns fraud remains a pressing issue for merchants, costing retailers billions of dollars each year. From wardrobing (buying items, using them, then returning them) to counterfeit item swaps and false “item not received” claims, fraudsters are exploiting gaps in return policies. This year, merchants reported a noticeable uptick in fraudulent returns, with some leveraging AI-driven risk assessment tools to identify suspicious returns and mitigate losses. In fact, 18% of merchants reported losses exceeding $100,000 due to fraudulent returns. Functions such as address verification, enhanced tracking, and more stringent return policies have emerged as key defenses against these fraudulent activities.

The environmental toll of returns

Customer-friendly return policies drive sales but come at a cost—both financially and environmentally. Many returned products, particularly in apparel and electronics, never make it back to shelves, instead contributing to landfill waste. Additionally, the carbon footprint of reverse logistics continues to grow as items crisscross supply chains. In response, retailers are prioritizing sustainable returns management, from in-store return incentives to resale partnerships and eco-friendly packaging solutions.

Key takeaways: Lessons from this peak returns season

To detect fraudulent returns and reduce losses, retailers are turning to AI-powered tools. By analyzing purchase behavior, flagging high-risk transactions, and integrating predictive analytics, merchants can better safeguard against abuse while ensuring legitimate customers have a smooth returns experience.

Shipping insurance and robust address verification systems also play a crucial role in reducing losses from misplaced or fraudulent returns. By integrating these measures, merchants can provide better protection for customer shipments and limit financial risks associated with returns fraud. Advanced tracking technologies that provide real-time updates can also help ensure that returned items reach their intended destinations efficiently, minimizing both costs and disputes.

From a sustainability standpoint, retailers are adopting practices to decrease the environmental impact of returns. Many merchants are beginning to encourage in-store returns to reduce the carbon footprint associated with returns shipping. Others are partnering with resale platforms to give retuned products a second life rather than sending them to landfills. Additionally, some businesses are incentivizing customers to opt for store credit instead of full refunds, which can help minimize unnecessary returns. Smart packaging solutions are also gaining traction, as they reduce material waste and improve recyclability, further contributing to sustainability efforts.

Adapting strategies for reverse logistics

As retailers reflect on this year’s peak returns season, strategic adjustments must be made to reverse logistics processes. Retailers looking to optimize reverse logistics should focus on:

·       AI-powered fraud protection. Leveraging machine learning to assess risk and reduce fraudulent returns.

·        Sustainability initiatives. Encouraging in-store returns, resale, and store credit incentives to minimize waste.

·        Automation and efficiency. Investing in return processing automation to streamline operations and reduce costs.

As the industry moves into 2025, businesses must refine their reverse logistics strategies to balance customer experience, fraud prevention, and environmental responsibility, ensuring a more efficient and sustainable future for returns management.