Why holiday returns demand fresh thinking from retailers

Far from a signal that relief from the grind is near, it’s the time when pressure to perform reaches a fever pitch. With so much potential revenue on the line, inventory must be accurate, shelves must stay stocked and omnichannel operations must run without a hitch. Getting it right this holiday season will mean approaching one of retail’s most persistent challenges through a new lens. 

Less friction for shoppers, more risk for retailers

Returns are a challenging necessity in modern, “customer-is-always-right” retail. Shoppers’ expectation of convenience at every turn encourages retailers to relax their policies, as consumers seek out and reward stores that embrace flexibility. 

This is especially true during the holiday season, when gift-giving peaks and the potential for getting the wrong size, color or model is high. Few people are willing to purchase items for someone else without an assurance that, if something goes wrong, the store or brand will correct the situation. However, these more accommodating policies increase risk. 

To start, loosening return policies can make bending the rules feel less taboo. The National Retail Federation’s 2025 Retail Return Report found that 45% of shoppers now believe it’s OK to fudge the truth to attain a return. These policies also open doors to bad actors who actively seek out return policies with fewer barriers and less friction. Per the NRF, 9% of 2025’s holiday returns were fraudulent, and 75% of retailers say things are getting worse.

Regardless of intent, the NRF’s report estimates that 15.8% of total annual sales end in returns, rolling back nearly $850 billion in sales in 2025. During the holiday rush, that estimate hits 17%. For online sales, which increasingly route pickups and returns through brick-and-mortar stores, it grows to 19.3%. With spend this holiday season expected to top $1.7 trillion, America’s retailers have upwards of $170 billion to lose this year.

And that’s just the start. Increasingly precise inventory, shopper behavior and supply chain intelligence capabilities prove that the impacts of retail challenges are rarely confined to their origins.

That’s as true for returns as any other area. Untracked or inaccurate return records can quickly become inventory discrepancies, wasted labor and lost sales. All those losses should be on returns’ tab, but they’re often left off the bill because few retailers can see them clearly.

How losses hide in retailers’ systems

Knowing these losses should factor into the equation and quantifying them are two different things, though. Despite retailers’ investments in end-to-end systems, returns remain something of a black hole. These systems run on item- and category-level RFID data. Returns get left out because item identifiers disappear right when the potential for a return arises: when the item is sold.

This fact — that items lose their IDs the first time they leave the supply chain — sits at the center of returns-driven loss. Common fraud tactics, such as overstated quantity claims, empty-box returns and item swaps, all depend on retailers’ inability to verify that the item on the return counter is the item that left the store.

Overcoming this challenge has driven the development of a new breed of RFID tag. Embedded tags — which can be added within seams or as part of existing brand/care labels — are integrated into a product at the point of manufacturing. Each unit can permanently carry a unique identifier that proves origin, movement and that it hasn’t been swapped or lifted from inventory.

This permanence can also help mitigate the more hidden losses associated with traditional returns processes. When folded into existing loss-prevention infrastructure — alongside point-of-sale, exit, shipping and inventory data — return-focused data adds critical context. Seeing where, when and how returned items move adds color to already robust systems. 

Tailored shrink analytics tools use returns data to strengthen real-time inventory accuracy by allowing valid items to “re-enter” the supply chain seamlessly. When an item’s unique identifier is scanned at the return counter, it is immediately added back into the system as stock, whether noted as available, damaged or otherwise. In addition to highlighting loss patterns, this ensures real-time counts reflect reality.

This additional insight has wide-reaching impacts throughout sales floors, improving end-to-end experiences. When valid and fraudulent returns are verified, retailers learn when, where and how losses happen, enabling more targeted and precise physical barriers to reduce friction. This insight also frees up associates’ time, so they can focus on supporting shoppers and delivering holiday cheer.

The seam tag is holiday retail’s tiniest helper

Returns will remain part of retail’s reality, but they don’t have to be an analytical black hole. Embedding identity at the seam or the tag allows data to survive the sale, so when an item ends up on the return counter, there’s no question about where it came from. When the item returns to shelves, tracing its history also helps uncover new patterns in merchandise movement. 

With these intelligent loss prevention tools, retailers can feel confident that they’re covered from source to store. During the high-traffic, high-volume, high-pressure holiday rush, retailers would be hard-pressed to put a price on that kind of visibility and the peace of mind it can offer.

Sponsored by Sensormatic