How to write a great ecommerce return policy

Wrong size, wrong color, item arrived too late, buyer did not read measurements and ended up with doll furniture instead of the perfect human-sized mid-century modern credenza — whatever the reason, a return has to be made. 

Retail returns are an inevitable part of doing business, especially during busy shopping seasons like the holidays. According to a National Retail Federation survey, 2022 ecommerce returns accounted for $816 billion in lost sales, with 17.9% of holiday purchases returned, equating to nearly $171 billion in returns. In fact, returns are such an integral part of holiday shopping that they’ve sparked a new day of recognition in early January: National Returns Day (and in 2021, the day was expanded to National Returns Week).

Retailers have a tricky problem to solve: how to make the returns process customer friendly and cost-effective for the business.

Returning products is often a hassle on both sides of the counter. For the buyer, the returns process usually includes a trip to the store and a wait in a customer service desk line (or, increasingly, a trip to the post office). For retailers, however, the process (and potential headache) only starts there. Not only is the retailer losing out on that sale, but return shipping, processing, and restocking fees can add up.

Unsurprisingly, the ecommerce returns industry is cause for some concern for environmentalists. Of the billions of dollars’ worth of products that are returned, an estimated 9.5 billion pounds end up in landfills according to a 2022 study by returns technology platform Optoro. Some companies are taking a more sustainable approach to returns; Best Buy is trying to refurbish, resell, and recycle returns where possible.

While eliminating returns is unlikely, there are several ways to create a positive ecommerce returns policy for both the customer and the store, including:

Online retailers with ties to a brick-and-mortar store can facilitate returns of online orders by accepting them in-store. During the busy returns season (i.e., after the holidays), setting up a special kiosk for online-ordered returns may be worthwhile.

For example, Nordstrom Local locations make it easier for shoppers in parts of California and New York to pick up and return their Nordstrom purchases. The “service hubs” carry no inventory for sale but offer online order pickup, gift-wrapping services, returns and exchanges, and even alterations.

Retailers with no brick-and-mortar option can streamline the returns process by including a prepaid return shipping label in each shipment (retailers only pay for labels used). This affords retailers more control over the returns process, such as which carriers or services can be used. It also brings peace of mind to consumers: Buyers know they can simply drop the package with the shipper if they want to return or exchange the goods.

If having to return an item is usually a disappointment, having to pay to return it can seem like an affront. Yet shipping is costly to businesses, and with return rates spiking it’s becoming more so.

Increasingly, retailers are looking to make up for lost income by doing away with free returns, or charging return shipping and restocking fees. Clothing retailer Zara is charging customers to return online purchases unless they’re returned in person. Other retailers that have started or are planning to enact return fees are H&M, Anthropologie, REI, and L.L.Bean.

Another option is to provide free returns shipping for some purchases but not others, or only at certain times of year. For example, offering free returns for full-price items but not items on sale, or free returns during the holidays. Whatever the policy, it should be straightforward and clearly communicated, so customers don’t get confused and expect free shipping when it’s not available.

No matter how returns are handled, transparency is essential. Customers want to know how long it will take for returns or exchanges to process, and how long before their accounts will be credited. A 2020 Inmar Intelligence survey found that 89% of consumers want to receive returns status updates via email and/or text. Should a problem arise, they’ll also want to be able to communicate directly with the retailer.

Getting sales tax right on returns and exchanges is critical. Customers will want to see that they were refunded the full amount of tax due on returns. With exchanges, they’ll check to see that they’re credited or charged the proper difference. And they won’t be the only ones looking: Tax authorities will scrutinize sales tax returns and remittances to ensure they add up as they should when refunds and credits are involved.

Online sellers with customers and an obligation to collect sales tax in multiple states need to understand each state’s policy regarding sales tax, refunds, and exchanges. Unfortunately, sales tax laws and policies differ from state to state.

If a product is returned before the collected sales tax has been remitted to the tax authorities, retailers may be able to simply refund the tax due to the customer. Yet the process can become much more complicated if returns and exchanges are processed after sales tax has been remitted and sales tax returns filed.

In Connecticut, for example, retailers are required to refund sales tax along with the purchase price so long as products are returned within 90 days of the date of purchase; customers must be able to verify the date of purchase (e.g., with a receipt). If the return occurs more than 90 days after the original purchase date, customers are not entitled to a sales tax refund.

Other issues that can complicate sales tax compliance regarding online returns and exchanges is whether sales tax is charged on shipping, who pays for the shipping, and so on.

Though they can be minimized, it’s best to accept ecommerce returns as an unavoidable part of business rather than try to prevent them with high return charges or a cumbersome process. Those techniques can backfire and alienate customers.

Similarly, it helps to accept sales tax collection, remittance, and filing as an unavoidable part of doing business and do what you can to simplify. Automating sales tax compliance can help.