Amazon’s Free Return Policy Crisis: Why $850 Billion in Returns is Crushing Retailers

Amazon’s online dominance was born out of a customer-centric model in which convenience reigns supreme. And a key tenet of that model is to offer shoppers free shipping and no – or low-cost returns, with a full refund. All done to make the shopping experience easy and more convenient.

But Amazon’s free shipping and returns policy unleashed a tiger on the entire retail industry.

Consumer expectations have changed as a result of this practice, and is causing massive problems for other retailers who simply can’t compete at that level. And while Amazon is bolstered by enormous revenue from its Prime membership program (estimated to be earning more than $44 billion from 250 million global customers per year through yearly and monthly subscriptions, as well lower-cost options for students and those on government assistance), other retailers don’t have that alternate financial stream to subsidize their now-massive costs to fund the growing online returns problem.

When it comes to the cost of returns, Amazon also comes out ahead, as its third-party partners often foot the bill through various fees charged by the online giant.

All of which sets the stage for massive unrecovered losses across the retail industry that really hurts retailers, encourages fraud and is bad for the environment. In the 2025 Retail Returns Landscape report, which was released by the National Retail Federation (NRF) and Happy Returns (a UPS company), researchers said their findings reveal the dual nature of returns: a massive financial and operational burden for retailers, and a crucial component of customer loyalty.

While the 2025 report showed that the total return rate is stabilizing, the sheer volume of returned merchandise remains extremely high, driven by the persistent growth of e-commerce and changing consumer behaviors such as “bracketing.”

Key Findings: Data and Volume

The report projects that total returned merchandise will reach $850 billion this year. The authors of the report said while overall return rates remain steady, some areas are “facing more pressure than others.” The report noted that 19.3% of online sales will be returned in 2025.

The research also identified Generation Z as more inclined to return products. The report said as the influence of this generational cohort grows, so does its impact on returns. “Those between the ages of 18 and 30 made 7.7 returns of online purchases in the last 12 months, on average, more than any other generation,” the report noted.

The research revealed that consumers highly value immediacy, “with 76% saying they are more likely to choose a return option that provides an instant refund or exchange.” The report also found that a poor returns experience can deter future purchases. “About 71% of consumers say they are less likely to shop with a retailer again after a poor experience, up from 67% in 2024,” the report’s authors said, adding that about four out of five respondents said they will “share their negative experience with friends and family, potentially amplifying the impact.”

The report concluded that free returns are essential now that consumers have been trained to expect this benefit by Amazon and all the copycat retailers that followed in Amazon’s footsteps. Eighty-two percent of consumers polled cite free returns as a major consideration when deciding where to shop.

Key Findings: Retailer Challenges and Response

The report found that 9% of all returns are fraudulent. Retailers cited increases in sophisticated fraud tactics such as empty boxes (65%), overstated quantities (71%) and decoy returns (64%). But the abuse doesn’t end there. Sixty-two percent of respondents admit to participating in costly return behaviors such as “wardrobing” (wearing an item and then returning it) or “bracketing” (buying multiple items to return some or most of the items). To counter rising operational costs (shipping, processing, tariffs), a majority of merchants polled said they are prioritizing tightening up their returns process to address these abuses of the free policy, with many retailers now charging for at least one return method.

Industry analysts estimate that the highest return categories include apparel at 30 to 40% with some fashion brands seeing rates as high as 88% during peak times. Footwear return rates range from 17 to 35% while home goods range between 15 and 20%.

Such rates impose a heavy burden on revenue and profits. It is estimated that retailers lose about $10 for every $100 in returned items. A return results in not only lost initial revenue, but also incurs additional costs, such as processing, shipping (reverse logistics), restocking and potential markdowns if the item cannot be resold at full price and destroying damaged goods returned to the retailer. This can significantly erode profit margins.

Returned items tie up capital and add uncertainty to inventory levels. If items take a long time to process and restock, retailers may end up with less available inventory, leading to lost sales, or excess inventory, leading to further markdowns. Then there is the environmental impact. Returned inventory generates more than 5.8 billion pounds of waste each year, according to reverse logistics firm Optoro.

But there are strategies retailers and brands can deploy to mitigate the high cost of returns. For example, retailers can tighten up the abuses of their returns policy by giving consumers a very short window for free returns, say 7 days. Here are five other strategies they can deploy:

Strategy	Description	Cost Mitigation Result
#1: Improve Product Information Accuracy	Provide detailed, high-quality product pages. This includes multiple photos, 360-degree views, accurate sizing charts, virtual try-on tools (for apparel/accessories), and clear material/specification details.	Reduces returns caused by “not as described” or “wrong size/fit,” cutting down on reverse logistics costs and lost revenue.
#2: Use Data to Identify and Correct Root Causes	Analyze return data (return rates by product, supplier, and reason code) to identify recurring issues. Use this insight to improve product quality, refine supplier selection, or adjust merchandising strategies.	Prevents future returns at the source. Correcting a quality issue or sizing discrepancy for a high-volume product can lead to massive long-term savings.
#3: Incentivize Exchanges and Store Credit	Offer customers a bonus or incentive (like a discount on the exchange or a higher value for store credit) to choose an exchange or store credit over a full cash refund.	Retains revenue and keeps the customer’s money within the brand ecosystem, minimizing lost sales and improving cash flow.
#4: Streamline and Automate Reverse Logistics	Implement a seamless, self-service online return portal and integrate it with your logistics and inventory systems. Offer convenient options like in-store drop-off (BORIS: Buy Online, Return In-Store) or third-party drop-off locations.	Reduces processing costs (less manual labor, faster processing). Increases resale value by getting the product back into inventory faster, minimizing markdown risk. In-store returns also drive foot traffic.
#5: Implement AI-Powered Fraud Detection and Personalized Policies	Use artificial intelligence and machine learning to flag suspicious return patterns and identify instances of policy abuse or return fraud. Implement tiered or personalized return policies based on a customer’s lifetime value and return history.	Minimizes financial losses from fraud and abuse. Preserves high-value customers by offering them flexible terms while discouraging costly, high-frequency returners.

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