Returns Management
U.S. consumers returned $849.9 billion in merchandise in 2025, and processing each return costs $20-30, which means the channel you sell through determines whether returns are a minor expense or a business-ending problem.
U.S. consumers returned $849.9 billion in merchandise in 2025, roughly 15.8% of all retail sales. That number has more than doubled since 2020. Every one of those returns costs money to process: shipping, inspection, restocking, and in many cases the product can’t be resold at all. Processing a single return runs $20 to $30 on average. A return doesn’t just erase the revenue from that sale. It creates a new expense on top of the lost sale.
In-store return rates average 8.7%. Online return rates average 24.5%, nearly three times higher. If you’re a DTC brand selling exclusively through your own website, roughly one in four orders is coming back to you. If you’re selling through retail, the retailer absorbs most of that cost, but you pay for it in different ways: chargebacks, compliance penalties, and the wholesale margin you gave up to get on shelves in the first place.
What Returns Actually Cost
The per-return math
A return isn’t one cost. It’s a stack. Return shipping runs $8 to $12. Inspection and processing adds $5 to $8. Restocking, if the item can be restocked, costs $2 to $4. Add customer service time, and the total lands between $20 and $30 per return for most consumer products.
For lower-priced items, processing the return can cost more than the product itself. Amazon and other large retailers now issue “returnless refunds” on items under $15 to $20, telling the customer to keep the product because shipping it back costs more than writing it off.
The percentage hit: processing a single return costs between 20% and 65% of the item’s original price, depending on category and whether the product can be resold. A $40 lipstick that gets returned opened costs the brand the full $40 in lost revenue plus $20 to $30 in processing, turning a sale with a $24 gross margin into a $60 loss.
What happens to returned products
Not every return goes back on the shelf. An estimated 9.5 billion pounds of returned goods ended up in U.S. landfills in a single year, generating 24 million metric tons of CO2 emissions. For low-cost items and anything that’s been opened, it’s cheaper to destroy the product than to inspect, repackage, and resell it. In beauty, opened cosmetics cannot legally be resold and must be disposed of regardless of condition.
Returns by Channel
DTC and Shopify stores
If you sell direct-to-consumer, you own every return. The average Shopify store sees return rates of 17% to 20%, and apparel stores can hit 30% to 40%. Every return means you’re paying for the return shipping label (or the customer is, and she’s not coming back), the inspection and restocking at your 3PL or warehouse, and the customer service interaction that goes with it.
Two-thirds of retailers introduced return fees in 2025 because operations and shipping costs kept climbing. But 57% of consumers say they won’t shop at stores that don’t offer free returns, and 71% avoid stores where they’ve had a negative return experience. Charging for returns reduces return volume but also reduces repeat purchases.
The smarter play for DTC brands is steering customers toward exchanges instead of refunds. An exchange keeps the revenue in the business. Platforms like Loop and Returnly automate this by offering store credit or instant exchanges before the customer even ships the item back.
Amazon FBA
Amazon handles returns for FBA sellers, but the economics aren’t free. Amazon implemented returns processing fees in June 2024 for any product that exceeds its category’s average return rate threshold, typically 5% to 8%. The fee ranges from $0.50 to $2.00 per return.
That sounds small until you do the math: a $30 product with 35% margins running 8% returns against a 5% category threshold generates $1.50 in additional fees per excess return. On 500 monthly units, that’s $2,700 per year from a single SKU.
Amazon also shortened its reimbursement window for lost inventory from 18 months to just 2 months in early 2025, and reimbursements are now based on manufacturing cost, not retail price. If Amazon loses a product you paid $8 to make but sell for $30, you’re getting reimbursed $8.
For beauty sellers, returned cosmetics and skincare are almost always unsellable. Amazon lists a returned item as “customer damaged” and either destroys it or sends it back to you at your cost. Either way, that revenue is gone.
Retail and wholesale
When you sell through retailers like Sephora, Target, or Walmart, the retailer handles customer-facing returns. The in-store return rate is 8.7% compared to 24.5% online, and the retailer absorbs the processing cost. That’s one of the real advantages of wholesale.
But you pay for returns indirectly. Suppliers lose 5% to 7% of their revenue to retailer chargebacks on average, and return-related issues are a significant driver. If a product has high return rates, the retailer may charge you back for defective merchandise, deduct penalties for products that don’t meet sell-through benchmarks, or delist the product entirely.
Walmart’s OTIF program charges 3% of the cost of goods for shipments that miss delivery benchmarks. Target’s Perfect Order Program charges $0.75 per non-compliant carton with a $100 minimum. For a company doing $80 million in wholesale invoices, chargeback deductions alone can reach $4 million annually.
Returns by Product Category
Why beauty is different
Beauty has one of the lowest online return rates at 11%, well below apparel’s 26%. But beauty returns are uniquely expensive because of one fact: you can’t resell an opened cosmetic. By law, used cosmetics cannot go back on the shelf. A returned foundation, lipstick, or moisturizer that’s been opened, swatched, or used is destroyed. Every single one.
An apparel brand can inspect, steam, refold, and resell a returned sweater. A beauty brand recovers zero.
Sephora and Ulta both accept returns on opened products, which is part of what makes the shopping experience work. Both retailers let customers return used products within 30 days (reduced from 60 days in recent years), require government-issued ID to track return activity, and reserve the right to refuse returns from customers who abuse the system.
The cost falls on brands, not just retailers. When a customer returns a $42 serum to Sephora after using it for two weeks, Sephora eats the retail margin and the brand may face chargebacks or reduced reorders for that SKU. Consistently high return rates on a product can get it delisted.
Ami Colé was doing roughly $3.5 million in annual revenue across 600 Sephora doors on $3 million in total funding. Every returned product was inventory destroyed, revenue lost, and margin that a brand operating at the absolute floor of its capital couldn’t afford to absorb.
Apparel: the highest return category
Clothing has the highest return rate of any product category at 26% for online purchases. 75% of consumers report returning items because they didn’t fit. “Bracketing,” buying multiple sizes with the intent to return some, has become standard consumer behavior: 62% of consumers now purchase products in multiple sizes and return what doesn’t work. 51% of Gen Z shoppers admit to bracketing regularly.
A brand with 60% gross margins and a 26% return rate that costs $25 per return is losing roughly 10% of gross revenue just to process returns. Apparel brands have built this into their unit economics from the start. The margins are still painful.
Electronics and home goods
Electronics return at 11% online, and home products and furniture at 9%. Lower return volumes, but higher per-return costs because the items are heavier, more expensive to ship back, and more likely to be damaged in transit. Most electronics can be inspected, tested, and resold as refurbished, recovering 50% to 80% of the original value.
Return Fraud
Return fraud cost retailers $103.8 billion in 2024, representing 15.1% of all returns. The most common form is wardrobing: wearing or using a product and returning it as if it were new. 27% of consumers admitted to wardrobing in 2025. 60% of all fraudulent returns fall into this category. Online returns are 5.4% more likely to be fraudulent than in-store returns.
For beauty brands, it takes a specific form. Customers buy a product, use most of it, and return the nearly empty container claiming it “didn’t work” or caused a reaction. Because Sephora and Ulta accept used products, there’s limited friction against this. It’s one of the reasons both retailers moved from 60-day to 30-day return windows and now track return patterns by customer ID.
45% of shoppers told the National Retail Federation that it’s “acceptable to bend the rules” when returning items. One in two.
How Brands Handle Returns
e.l.f. Cosmetics runs roughly 85% of its revenue through wholesale, which means the vast majority of its returns are handled by Target, Walmart, and Ulta at those retailers’ expense. The in-store return rate of 8.7% applies instead of the 24.5% online rate, and e.l.f. doesn’t pay for return shipping, customer service, or restocking on those units. The wholesale model is a returns hedge.
Glossier ran DTC-only for years and absorbed every return internally. When it entered Sephora in 2023, it didn’t just gain distribution. It shifted a significant portion of its returns burden to a retailer equipped to handle them at scale. The move to omnichannel isn’t only about growth. It’s about who pays when a customer changes her mind.
For DTC brands that can’t or don’t want to enter retail: reduce returns through better product descriptions and sizing tools, steer returns toward exchanges instead of refunds, issue returnless refunds on items under $15 to $20 where processing costs exceed product value, and build the true cost of returns into your unit economics from day one. If you’re modeling 5% returns and actually experiencing 20%, your margins are fiction.
Frequently Asked Questions
What is the average return rate for online vs. in-store purchases?
Online purchases are returned at 24.5%, in-store at 8.7%. The overall retail return rate across all channels is 15.8%. Apparel has the highest online return rate at 26%, followed by footwear at 18% and accessories at 13%. Beauty and electronics both average 11%.
How much does it cost to process a return?
$20 to $30 per return when you include return shipping ($8 to $12), inspection and processing ($5 to $8), and restocking ($2 to $4). As a percentage of product value, returns cost between 20% and 65% of the original price. For items under $15 to $20, many retailers now issue refunds without requiring the product back because processing would cost more than the item is worth.
Can returned beauty products be resold?
No. By law, used or opened cosmetics cannot be resold. Returned beauty products that have been opened, swatched, or used are destroyed. This makes beauty returns uniquely expensive compared to apparel or electronics, where returned products can often be inspected and resold.
What is wardrobing?
Buying a product, using it, and returning it as new. It’s the most common form of return fraud, accounting for 60% of all fraudulent returns. 27% of consumers admitted to it in 2025. In beauty, this looks like buying a foundation, using it for two weeks, and returning it claiming it “wasn’t the right shade.” Retailers combat it through shorter return windows, ID tracking, and return pattern monitoring.
How do Amazon FBA returns work for sellers?
Amazon handles customer returns but charges a processing fee on products that exceed category-specific return rate thresholds (typically 5% to 8%). The fee is $0.50 to $2.00 per return. Returned items may be listed as “customer damaged” and either destroyed or returned to you at your cost. Amazon reimburses lost inventory based on manufacturing cost, not retail price: a product that costs $8 to make but sells for $30 gets an $8 reimbursement.
Sources
- Capital One Shopping, “Average Retail Return Rate,” 2026. Return rate data: 8.7% in-store vs. 24.5% online, $849.9 billion total, category breakdowns, fraud statistics.
- NRF, “2025 Retail Returns Landscape,” 2025. Total returns projections, 19.3% online return rate, consumer attitudes toward return fraud.
- NRF, “Consumers Expected to Return Nearly $850 Billion in Merchandise in 2025”. Industry-wide return volume and cost data.
- Shopify, “Ecommerce Returns: Average Return Rate and How to Reduce It,” 2025. DTC return handling strategies, per-return cost breakdowns, exchange vs. refund economics.
- Appriss Retail, “From Cart to Landfill,” 2024. 9.5 billion pounds of returns in landfills, 24 million metric tons CO2 emissions.
- Titan Network, “Amazon Return Policy Changes 2026”. Amazon returns processing fees, category thresholds, margin compression math.
- Seller Labs, “Amazon’s 2025 Reimbursement Policy Update”. Reimbursement window shortened to 2 months, manufacturing cost basis.
- ConsumerAffairs, “Amazon’s ‘Keep It’ Returnless Refunds Are Growing,” 2025. Returnless refund thresholds and seller control options.
- TheStreet, “Sephora and Ulta Tighten Returns Policies”. 60-day to 30-day window change, ID tracking, fraud prevention measures.
- SupplierWiki, “Understanding Retailer Deductions, Chargebacks, and Fines”. 5-7% revenue loss to chargebacks, $4M deduction example.
- Talk Business & Politics, “Retailer Chargebacks Could Hurt Margins for Vendors,” 2026. Chargeback volumes growing, up to 15% gross sales erosion.