This past holiday season, as with many other times of the year, the difference between making or losing money online came down to one thing for many retailers: How effectively and efficiently they handle returns of merchandise.

Returns are as old as the retail industry itself. But they play a much larger role in e-commerce. That’s why a retailer’s process for handling them, often called reverse logistics, is so critical. It includes everything from the retailer’s processes to its inventory-management systems to the industrial real estate where its returns are handled.

Consider that the average return rate for merchandise bought in stores is roughly 8 percent. The e-commerce return rate is much higher – 15 percent to 30 percent, depending on the merchandise category – due to years of ingrained behavior among shoppers. Specifically, folks tend to buy multiple varieties of a given product online, examine them at home and then return all but the one they opt to keep.

This becomes an expensive proposition, considering the robust growth of e-commerce. To wit, eMarketer estimates that November-December online sales in the U.S. totaled $123 billion. Applying the typical rate of online returns to that estimate means that up to $37 billion of goods came back to retailers in the post-holiday weeks. Retailers endeavored to limit that loss by assessing which goods can be resold, where and how quickly.

How to deal with those returns is a complex challenge that many retailers address with a combination of solutions.

Dedicating Warehouses for Handling Returns

Many retailers and shippers process returns in their own warehouses. But there’s a marked difference between dedicating space to processing returns and just letting them stack up in a corner of an outbound warehouse for examination when time allows.