Your return rate is a margin problem: the numbers that decide the policy

The headline number is the wrong benchmark

The number most operators see quoted is the National Retail Federation's 16.9 percent all-retail return rate for 2024, representing $890 billion in returned merchandise. It is the most widely cited retail benchmark, and it is the wrong one to hold an apparel brand against, because it mixes categories, channels, and return definitions that do not apply to a single store.

The number that matters for an online store is the online rate. NRF and Happy Returns put it at 19.3 percent of online sales for 2025, against 15.8 percent of all retail sales, with total returns estimated at $849.9 billion. Online returns run roughly twice the rate of physical retail, because the customer cannot inspect or try the product before purchase, and the rate has more than doubled since 2019.

The category number is the one to benchmark against. Loop Returns observed a 23.2 percent adjusted return rate across 22 million returns from more than 4,000 Shopify apparel merchants between January and October 2024, and Coresight Research surveyed 24.4 percent for US online apparel. A store that benchmarks itself against the 16.9 percent all-retail figure is benchmarking against a number that was never theirs.

The cost is not the refund

The refund is the smallest part of the cost. The return has to be shipped back, inspected, restocked or written off, and the payment has to be reversed, and each step costs staff time and money. A return that is resold at full price costs the shipping and the handling. A return that is resold at a discount costs the margin as well. A return that cannot be resold costs the whole product.

The fraud is the second cost. NRF and Happy Returns put fraudulent returns at 9 percent of all returns in 2025, and the fraud is not the customer who changed their mind. It is the return of a different item, the return of a used item, and the return that was never purchased. A policy that accepts every return without a check accepts the fraud with it.

The third cost is the behaviour the policy creates. Fifty-one percent of Gen Z consumers bracket their fashion purchases, buying extra items knowing they will return some, according to NRF. A free-returns policy on a bracketing customer is a policy that pays for the customer to try on three sizes and keep one, and the cost of the two that come back is the price of the sale.

The policy, priced honestly

Price the policy against the category rate, not the headline. A store with a 23 percent return rate and a $60 average order value returns $13.80 of every $60 order, before the shipping and handling, and the margin has to carry it. A store that prices as if the rate were 10 percent is pricing a different business.

Charge for the return methods that cost the most, and keep the cheapest method free. NRF's 2024 report found that 66 percent of retailers started charging for one or more return methods in the past year, and the charge is not a punishment. It is the price of the return, stated honestly, instead of hidden in the product price where it punishes the customers who never return anything.

And measure the return rate by reason, not just by total. A return rate that is mostly wrong size is a sizing problem, and the fix is a size guide, not a policy change. A return rate that is mostly damaged or defective is a quality problem. A return rate that is mostly bracketing is a policy problem, and the fix is the charge. A product page that gets traffic but no sales is the same kind of leak, and the funnel tells you which stage it is in, just as the return reason tells you which problem the policy has to solve.

Frequently asked questions

What is a good return rate for an online store?

It depends on the category. NRF and Happy Returns estimate 19.3 percent of online sales will be returned in 2025, against 15.8 percent of all retail sales. For apparel, Loop Returns observed 23.2 percent across Shopify merchants in 2024. Benchmark against your category, not the all-retail headline.

How much do returns cost beyond the refund?

The return has to be shipped back, inspected, restocked or written off, and the payment reversed. A return resold at a discount costs the margin as well, and a return that cannot be resold costs the whole product. Fraudulent returns were 9 percent of all returns in 2025.

What is bracketing, and why does it matter?

Bracketing is buying extra items, usually sizes, knowing some will be returned. Fifty-one percent of Gen Z consumers do it, according to NRF. A free-returns policy on a bracketing customer pays for the customer to try on three sizes and keep one.

Should I charge for returns?

Charge for the return methods that cost the most, and keep the cheapest method free. Sixty-six percent of retailers started charging for one or more return methods in the past year. The charge is the price of the return, stated honestly, instead of hidden in the product price.