How retail CFOs can keep an eye on return costs

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As anyone who ever mistakenly bought a “What is Even Happening” triple-XL T-shirt can tell you, returns are an inevitable part of the retail business.

Last year, retailers estimated that 15.8% of their annual sales would be returned, for a total of $849.9 billion, which was in line with 2024’s returns rate of 16.9% totaling $890 billion, according to a report from the National Retail Federation and Happy Returns, a returns software and reverse logistics company from UPS.

But CFOs need to get greater visibility into the full scope of their costs before they can rest easy about their returns strategy, one CFO told us.

“It does a lot of damage. Returns and shrink do a lot of damage to any retailer’s bottom line,” Andrew Weeks, CFO of Appriss Retail, which provides loss prevention software for retailers, told CFO Brew.

“Most retail CFOs and/or finance departments have great visibility to overall return rate, but what maybe you don’t always have visibility to is the disparate or fragmented nature of the economic impact of those returns and shrink,” he continued.

That’s because there are costs related to returns that are not necessarily all in one place on the P&L statement, Weeks noted. Instead, they’re dispersed across things like disposal costs, inventory shrink, reverse logistics, restocking, repackaging, and customer retention efforts.

“It’s a fragmented response on your P&L, and sometimes visibility to that broader array of costs is not necessarily as complete as you’d like it to be,” he explained. And that’s just one part of the problem.

Too many cooks. Outside of its patchwork appearance on the P&L, Weeks added that “within an organization, it’s also fragmented from an accountability perspective.”

“Finance doesn’t discretely own the resolution,” he explained. “You have a loss prevention team, you have store operations, you have merchandising and procurement, you have supply chain, you have customer service, you have IT. They’re all involved in that process that touches returns.”

The fragmented nature of the issue creates some “healthy friction and tension within the business” since all of the impacted teams have different priorities, he said, so “a finance head or a CFO has to come in and say, let me play referee and balance that decisioning.”

But because lots of eyes are on the problem, it also means that “when it comes time to go get budget for a solution that might solve the issue you have with returns, you’re competing with other functions for those dollars, and it becomes, again, a more challenging ask if you can’t define and clearly articulate what the full economic cost is,” Weeks noted.

Data exercise. So, where does this leave retail CFOs?

“From my perspective, it comes back to data,” Weeks said. “I’m already reporting on returns on a quarterly basis anyway, in some respects. But then what’s the waterfall down to: What is my detectable behavior? What’s my actionable behavior? And what’s my economic recovery? That’s all going to be found within your own data.”

Untangling hidden or overlooked return costs with data will also help all teams set more effective returns policies. “That’s something that I think comes out very loud and clear when you start getting under the hood on your data,” he said.

And, of course, that’s a CFO’s bread and butter. “CFOs are great at looking at data, and they’re great at identifying anomalies and things of that nature,” Weeks added. “And that’s what this is, in large measure: It’s a data exercise.”