Returns are the part of the supply chain that gets designed last and consumes more than expected. Product moves backwards through the same network, requires inspection and a decision, and ties up cash the whole time.
Why returns cost so much
An outbound order goes from a known location to a known address in a planned route. A return arrives unpredictably, from anywhere, in unknown condition, and requires a human decision.
The cost components:
- Return freight, frequently at retail rather than contract rates.
- Receiving and inspection, which is manual.
- The decision — restock, repair, discount, dispose.
- Restocking or repackaging.
- The credit, and the administration around it.
- Value loss where the item cannot be sold as new.
- Cash tied up between the refund and the resale.
For low-value items the total cost of processing a return routinely exceeds the item’s value, which is why some retailers refund without requiring the goods back.
Consumer law sets the floor
Under the Consumer Guarantees Act, where goods fail to meet a guarantee:
- For a minor failure, the retailer may choose between repair, replacement or refund, and the consumer must give a reasonable opportunity to repair.
- For a substantial failure, the consumer chooses — reject for a refund or replacement, or keep the goods and claim compensation for reduced value.
Where goods must be returned for a remedy, the retailer generally bears the cost of return for a failure. That is not a service concession.
Change of mind carries no statutory entitlement. Many retailers offer it as policy, which is sensible online where the buyer could not inspect. Distinguish the two clearly — describing a generous policy in terms suggesting it is the limit of the customer’s rights misrepresents their position and creates Fair Trading Act exposure.
Cross-border returns are a different problem
Selling into markets with statutory cooling-off rights — the European Union and United Kingdom among them — means accepting change-of-mind returns you cannot exclude.
Return freight from the northern hemisphere frequently exceeds the value of a mid-priced item, and returned goods may attract duty coming back in.
Options: a local returns address through a service provider, refunding without requiring return for low-value items, or accepting returns cost as a market entry expense. Model it before entering the market rather than discovering it.
Reducing returns is cheaper than processing them
The highest-return work is preventing the return:
- Accurate product information — dimensions, materials, fit, compatibility. Most change-of-mind returns are expectation failures.
- Better images, including scale references.
- Sizing guidance where relevant, and consistency across a range.
- Picking accuracy. A wrong-item return is entirely self-inflicted, and barcode scanning at pick and pack eliminates the dominant error class.
- Packaging that protects. Damage in transit is a return you paid freight for twice.
Track returns by reason rather than as a single number. A high return rate on one line is a product or description problem; a high rate across everything is a fulfilment problem.
Resourcing it properly
Returns are frequently under-resourced until a corner of the warehouse fills with unprocessed stock — which is also unavailable inventory, so the problem compounds.
What works: a defined process with a target turnaround from receipt to disposition, a dedicated area rather than wherever there is space, clear disposition rules so staff do not need to escalate every decision, and someone accountable for the turnaround time.
If you use a third-party provider
Returns handling is frequently under-scoped in 3PL agreements and is where cost surprises concentrate.
Establish before signing: what returns processing is included, how it is charged, what the turnaround commitment is, and who decides disposition. And check the liability position for stock damaged in returns handling.
The disposal end
Product that cannot be resold has to go somewhere. The waste disposal levy has risen, making disposal a real cost.
Options worth considering: secondary channels, repair and resale, donation, or recycling. And note that where a product falls within a regulated product stewardship scheme, disposal obligations may attach.
The Commerce Commission publishes Consumer Guarantees Act and Fair Trading Act guidance for businesses free at comcom.govt.nz, and the Ministry for the Environment publishes waste and product stewardship material under CC BY.
General information only, not legal advice.
