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1.8 min read
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Published On: December 17th, 2025

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The Hidden Cost of Free Returns:
When Generosity Hits the Bottom Line

There was a time when ‘’free returns’ felt like retail generosity – a wink to customers, a signal that style came without risk. In 2025, that perk is starting to strain balance sheets.

Behind every refund lies a cascade of hidden costs: logistics, restocking, inspection, customer service – and often, quietly eroding margins. What looks seamless to the shopper is often a delicate, expensive choreography behind the scenes.

Returns are more than just a nuisance

  • Online returns now account for 17.5% of purchases, with 78% ending in refunds rather than exchanges.

  • “Serial returners” cost UK retailers £6.6 billion annually in returned goods.

  • Meanwhile, 72% of UK shoppers expect free returns, rising to 80% for over‑55s.

The dilemma is clear: generosity drives loyalty – but unchecked, it hits the bottom line.

Retailers are reacting

Many brands are evolving their returns policies to manage costs:

  • Charges for frequent returns: ASOS (£3.95), H&M (£2.95) and PrettyLittleThing (free only for loyalty members).

  • Fewer serial returners: Stricter policies are reducing repeat returns from 12% to 8%, saving retailers an estimated £1.7 billion this year.

Retailers are walking a tightrope: protect margins, but don’t alienate customers.

Smart alternatives

Retailers are experimenting with strategies that reduce returns without damaging loyalty:

  • Exchange-first or in-store incentives – encourage exchanges over refunds to keep value in the business.

  • Better sizing and AI recommendations – virtual try-ons and personalised suggestions help customers get it right the first time.

  • Transparency and education – explain environmental and financial costs to build trust and encourage responsible returns.

What this means for retail leaders & CIOs

Returns aren’t just an operational headache –
they’re a strategic lens:

  • Omnichannel integration is critical: Seamless returns across online, in-store, and mobile require integrated POS, inventory, and analytics systems.

  • Data is your ally: Track refund vs exchange rates, serial-returner behaviour, and product-level returns to spot trends early.

  • Balance generosity with profitability: Flexible policies, partial fees, and personalisation protect margins while maintaining goodwill.

Generosity – with guardrails

Free returns used to be a badge of retail generosity. Today, they’re a high-wire act between brand promise and business reality.

Retailers who treat returns as more than just logistics – seeing them as part of the customer experience, data strategy, and brand value – can turn a potential drain into insight.

Because in 2025, retail success is no longer just about what you sell. It’s about what you manage.