Turning returns into revenue: Mastering reverse logistics at scale

Warehouses and DCs no longer see returns as an afterthought that can be handled whenever it’s convenient. With order volumes rising and SKUs multiplying, the reverse flow of goods is now as important as outbound fulfillment.

Every item that comes back needs attention, and companies are finding ways to turn that challenge into an opportunity. In 2024, retail returns hit $890 billion, putting reverse logistics at the center of daily operations, according to a National Retail Federation report.

Last year nearly 20% of online purchases were returned, with rates reaching 30% in categories like apparel and shoes. Online return activity jumped almost 40% from 2023 to 2024, far outpacing in-store returns, according to a Capital One Research Report.

Each product had to be received, assessed and moved back into inventory or resale channels quickly. Customers expected simple and free return options, with more than 75% saying it shaped where they shopped, so the pressure to get this right was high.

Instead of treating returns as a burden, many organizations are using them to build loyalty. More than two-thirds of retailers upgraded their returns capabilities in 2024, for example, with the goal of protecting margins, cutting waste and improving customer experience. Companies that streamlined reverse logistics put themselves in a stronger position for long-term success.

Returns impact space planning, staffing, workflows, inventory accuracy and even the customer experience, making a structured approach essential.

“Especially if you’re in e-commerce, returns processing has to be part of your standard operating process (SOP),” says Joshua Hartman, market delivery director at Dematic Mobile Automation. “You need dedicated space, systems and people to run it. At higher volumes, automation becomes essential. It cuts handling costs, accelerates customer credits and delivers a better overall experience.”

Structuring returns for speed and accuracy

Most DCs already feel the weight of returns; the question is how to structure the reverse flow for speed and accuracy.

Hartman recommends designing returns as a defined flow, not a spillover task. Dedicated space, trained people and clear processes keep product moving instead of impeding core operations.

Once that foundation is in place, automation is the next step. Conveyors, scanners and robotic cells verify product condition, match items to orders and sort them for resale. These tools cut handling costs and speed up credit issuance, which improves the customer experience.

Hartman also emphasizes the role of data in building a strong returns strategy. For example, predictive analytics can be used to forecast what items are likely to come back and direct them to the best point in the network for resale.

“For each return, a decision has to be made about where it belongs in the network,” says Hartman. “Getting that step right increases your ability to resell the item, and that’s especially critical for seasonal goods or any items with short shelf lives.”

Fraud detection tools and AI-driven chatbots strengthen the process further, he adds, and help organizations reduce costs while also protecting service levels. Ultimately, it’s all about receiving the products, inspecting them and then refunding or crediting customers as quickly as possible.

“The faster returns are processed and the more accurately they’re handled,” Hartman says, “the better it is for both cost control and customer experience.”

Returning goods to sellable inventory

Every return comes with a choice: It can sit idle or it can be put back to work in inventory as quickly as possible.

“The key with returns is getting items back into inventory quickly so they can be resold,” says Andy Lockhart, director of strategic engagement, warehouse solutions, North America at Vanderlande. That means shrinking the time between when an item arrives at the dock door and when it is once again available to ship.

Automation plays a critical role in making that happen. Lockhart points to systems that can perform initial quality checks, route items into the right channel and get them back into stock immediately.

“Automation makes a return sellable the moment it’s back in the system,” Lockhart explains. “If a customer wants a black T-shirt, and I’ve just received one back, I can ship it straight away.” This approach cuts hours or even days off the traditional manual process, where items sit in bins until someone has time to check and re-slot them.

Lockhart also sees third-party logistics (3PL) providers playing a larger role for companies that lack the internal resources to manage returns at scale. “Whether you’re handling returns in-house or through a 3PL,” he says, “the goal is the same: Turn every return into sellable stock as quickly as possible.”

Addressing shifting consumer patterns

Consumer behavior has shifted, with more shoppers buying multiple sizes or colors and sending back what doesn’t work. Adrian Stoch, CEO Americas at HAI Robotics, says this change has made returns unavoidable.

“Five years ago, customers worked harder to get the right size or color before buying online,” Stoch explains. “Now roughly a quarter of purchases are coming back, and companies have to make the process easy or risk losing the sale.”

That volume makes efficiency critical. Stoch recommends focusing on where automation can streamline the process. Human judgment is still needed to decide whether an item can be resold, discounted or discarded, for instance, but the tasks that surround that step don’t all have to be manual.

“You can’t automate the inspection itself,” Stoch notes, “but you can automate everything around it so labor is freed up for the jobs only people can do.”

Automation also turns returns into available stock before they lose value. Many returned products, especially in categories like apparel, may be proven sellers that need to be available for picking without delay.

“Returned goods are often the very items that customers are still ordering,” says Stoch. “Ignore this aspect of your supply chain and you’ll miss out on an entire sales segment that could be captured by simply moving the goods back into stock quickly.”

Managing the cost of returns

Outbound fulfillment gets most of the focus inside a warehouse, but ignoring returns is a fast path to rising costs.

Guy Courtin, vice president of industry and global alliances at Tecsys, says the growing scale of returns leaves companies little choice but to confront them directly.

“The first step is to admit this isn’t going away,” Courtin says. “Returns are a fact of life in supply chain and logistics. You can’t ignore them, and you can’t just hope they’ll diminish.”

Courtin recommends auditing both internal processes and external partnerships to understand the true cost of returns. Activity-based costing can reveal where labor, transportation and processing dollars are being spent, and where those costs can be controlled or shared.

“If I’m sending a truck to pick up one small item, the cost of labor and fuel adds up quickly,” he notes. “You need to know what that looks like across your network and coordinate with partners to make it more efficient.”

Companies that understand the true cost of returns can recover revenue by reselling or refurbishing goods. Courtin stresses that the critical shift is mindset: stop viewing returns strictly as a cost center and start managing them as a core part of the business model.

“The genie is out of the bottle,” he says, “and we’re probably never going back to a world where ‘you buy it, you own it.’”

It’s time to rethink fulfillment & returns

One of the biggest mistakes companies make is trying to force returns into the same workflows used for outbound shipping. Erhan Musaoglu, CEO of Logiwa, says that approach almost guarantees bottlenecks.

“Fulfillment centers are designed for speed in getting products out the door, not for bringing them back in,” Musaoglu explains. “When you try to mix the two, returns will always be the second priority.”

Musaoglu recommends separating the functions entirely, whether by building dedicated return centers or outsourcing to specialists. These facilities are designed to inspect, sort and recondition products, moving them quickly into the right channel, whether back to shelf, resale platforms or liquidation.

“Where a fulfillment center employee is focused on shipping the next order, returns require different skills, systems and processes,” he explains. “Separating the two prevents delays and protects your outbound flow.”

According to Musaoglu, third-party return centers are gaining ground as retailers look for help managing the growing flow of returned merchandise. Rather than letting the goods pile up in the corner of the DC until someone has time to sort through them, for example, companies are handing the job off to specialists that can process high volumes and use tech like AI to sort, price and resell items.

This approach takes pressure off fulfillment operations and helps recover value that would otherwise be lost. Musaoglu sees this as a healthy step forward.

“If you try to manage shipping and returns in the same facility, returns will always be the second priority,” he says. “Dedicated return centers and third-party specialists are proving there’s a better way.”