Retail has spent decades refining the forward supply chain. Forecasting is smarter. Inventory placement is tighter. Fulfillment is faster.

Returns, on the other hand, still sit in the operational shadows.

That disconnect matters more than most retailers want to admit. Reverse logistics now costs the industry an estimated $200 billion annually, yet the full impact rarely shows up in one place. Transportation costs sit with logistics.

Reprocessing falls into fulfillment. Markdowns and write-offs hit merchandising. Refunds live in customer operations. By the time those costs surface, the business has already absorbed the damage.

And the damage goes beyond cost.

Returns shape margin, inventory velocity, customer loyalty, and increasingly, compliance. Handle them slowly or inconsistently, and value slips away before most leadership teams can measure what happened.

Manage them with the right agentic AI platform, speed, and precision, and returns can transform into a source of insight and competitive advantage. That shift starts with how retail operations leaders choose to frame the problem.

The Real Issue Is Decision Latency

Returned items lose value fast.

The effect is obvious in seasonal and fashion categories, where timing decides whether an item sells at full price, gets marked down, or ends up written off entirely.

Route it through a default path—central processing, delayed inspection, downstream discounting—and the retailer may recover only half its value. Route it directly to a nearby store while demand is still active, and recovery rises significantly. For example, a holiday sweater returned in early December may still have strong resale potential.

Same product. Same customer action. Different decision. Different outcome.

Most retailers already hold the signals that could improve these decisions: customer history, product margin, shelf-life, regional demand, store inventory, network capacity. Here’s the real problem: returns decisions are still made too late, too narrowly, or with no joined-up view across functions.

That delay creates a hidden drain on enterprise performance. Analysts estimate an “invisible value pool” of $62.5 billion globally each year in revenue left behind when returned goods are treated as waste flows instead of recoverable assets. Bridging that divide is one of the highest-leverage moves available to retail operations teams today.

Fraud Gets the Headlines. Policy Behavior Drives the Load.

Retailers are right to stay focused on fraud. Roughly 9% of returns are fraudulent, and reported incidents of overstated quantities, empty-box returns, and counterfeit substitutions continue to rise.

A much bigger share of returns pressure comes from customer behaviors that fall within policy but still erode value: bracketing, wardrobing, excessive serial returns, and explanations that pass review but stretch intent. These behaviors are common, costly, and often hard to distinguish from legitimate returns without stronger context.

That creates a more complicated leadership challenge. Retailers won’t be able to completely solve the problem by putting restrictions in place. Tighten policy too far, and loyalty suffers. Stay too permissive, and costs keep climbing.

The better path is more precise. Returns decisions should reflect the full picture: who the customer is, what the product is worth, where demand still exists, what the network can absorb, and what action best protects both margin and experience.

That level of decisioning moves returns out of the binary world of approve or deny. It turns them into a series of smarter choices about routing, resale, exchange, refund timing, and customer treatment. These are the choices that retail operations can own with the right data and the right execution model.

Regulation Is Turning Returns Into a Board-Level Issue

For retailers with EU operations, returns are becoming a compliance priority.

Under the Ecodesign for Sustainable Products Regulation (ESPR), large companies will be prohibited from destroying unsold apparel, clothing accessories, and footwear beginning July 19th, 2026. Medium-sized companies are expected to follow in 2030. Disclosure requirements for unsold consumer products already apply to large companies.

This definition matters. “Unsold consumer products” includes returns, surplus inventory, and end-of-line items still fit for consumer use. In other words, many of the products flowing through reverse logistics now sit inside a regulatory framework.

The scope is also likely to expand. The European Commission can extend destruction bans into additional categories through future delegated acts, while Extended Producer Responsibility (ERP) requirements continue to grow across markets.

Returns strategy now sits at the intersection of operations, finance, customer experience, and compliance. Treating it as a narrow back-office function is no longer viable, and retail operations leaders who wait for the regulatory pressure to arrive before acting will find themselves lagging behind.

It’s Time to Stop Treating Returns as a Side Process

Returns are a live operating system for value recovery.

When retail operations teams treat reverse logistics as a connected, decision-driven capability, they gain something many businesses still lack: the ability to act before value erodes. They can route products based on condition, demand, location, customer profile, and resale potential.

It means that you can reduce markdown exposure, improve the odds of resale, and even align customer treatment with loyalty goals. It’s decisions like these that produce measurable business outcomes.

Customer service, merchandising, fulfillment, finance, fraud, and compliance all influence returns outcomes. The organizations pulling ahead are the ones building a shared view across those functions and making returns decisions with enterprise priorities in mind.

It’s the opportunity for strategic execution that turns returns into ROI.

Rules-Based Automation Can Move a Package. It Can’t Manage Trade-Offs.

Rules-based automation works best when conditions are stable and the right answer is obvious. Retail operations are rarely that tidy.

Product value and customer behavior can shift at a moment’s notice, and demand can change depending on the location, to name a few variables. A static rule set can’t weigh those variables well, but it can process a return request and send it to a specific destination. It can’t reliably choose the best outcome when the trade-offs are dynamic.

Moving Beyond Automation to Agentic Execution

Because traditional automation follows rigid “if-then” rules, it fails when forced to navigate the volatile, multi-variable reality of modern retail returns. True margin recovery requires Agentic AI—autonomous systems capable of assessing complex situations, weighing conflicting priorities, and taking immediate action across siloed enterprise systems.

Consider the difference in action:

Traditional Automation: The platform receives a return notification, checks a static rulebook, and prints a shipping label to the nearest centralized warehouse, unwittingly sending a high-demand seasonal item to sit in a liquidation queue for six weeks.

Agentic Execution: The platform intercepts the return request and dynamically cross-references the customer’s lifetime value and return history with local store stockouts, real-time regional demand, and current shipping rates. It autonomously determines that routing the item to a specific regional brick-and-mortar store yields a 75% value recovery. It then books the optimal carrier, updates the store’s inbound inventory ledger, and triggers a personalized, high-value exchange offer to the customer in milliseconds, all without human intervention.

This type of operating model is what we call decisioning at speed.

And that is where the baseline for supply chain performance is moving. Forward flow still matters. But so does how intelligently the business handles what comes back.

Retailers that continue to treat returns as a cost center will keep leaking value across the enterprise. Retailers that rethink returns as a strategic opportunity and build the retail operations infrastructure to support will be the ones to recover margin, protect loyalty, and build a more resilient operation in the process. Learn more and assess your organization’s readiness here.