Direct-to-consumer (D2C) brands are grappling with a returns tsunami that’s washing billions off their top lines. U.S. shoppers sent back an estimated $890 billion in merchandise in 2024 – about 17% of total retail sales. That’s up sharply from $743 billion (14.5% of sales) in 2023, which had been the first decline in return rate after pandemic highs. For D2C brands operating on thin margins, the cost is crushing: processing a return incurs 20–39% of an item’s original price in labor, shipping, and restocking. As Amena Ali, CEO of returns solution Optoro, bluntly put it, “the problem is not going to abate any time soon”. In this newsletter, we’ll explore how savvy D2C operators are responding – with real quotes from founders, up-to-date data on U.S. return trends, platform comparisons, and strategies to turn reverse logistics from a necessary evil into a competitive advantage.
The Margin Squeeze: Returns Eating Profits
Returns don’t just represent lost sales – they actively erode margins. For every $100 in returned goods, retailers lose roughly $10 to fraud alone, not to mention the cost of shipping and inspecting items that may never go back on the shelf. No wonder 68% of retailers say upgrading returns capabilities is a priority in 2025. “Retailers need to continue to focus on enhancing the digital product discovery experience… to reduce the need for returns,” notes Al Williams, GM of B2C at BigCommerce, underscoring that preventing returns (through better product detail, fit, and customer education) is step one in protecting margins.
Leading D2C brands have started openly discussing return impact in investor calls. For example, Revolve – an online fashion retailer notorious for bracketing (customers buying multiple sizes) – saw its return rate finally tick down year-over-year for the first time in three years. Co-CEO Mike Karanikolas credited longer-term initiatives like improved fit guidance and loyalty incentives for this reversal.
In short, fewer returns = fatter margins. It’s no surprise some brands are experimenting with disincentives: Steve Rop, COO of GoTRG, observed retailers in 2023 started adding return shipping fees and tightening policies, which helped industry-wide return rates drop from 16.5% to 14.5%. But stricter policies are a double-edged sword, risking customer backlash, which is why D2C brands are treading carefully and looking for win-win ways to mitigate return costs.
What D2C Founders and CX Leaders Say About Returns
Let’s hear from the operators in the trenches. Heather Howard, VP of Operations at Rothy’s, confessed that e-commerce as a whole has obsessed over fast fulfillment but “doesn’t take time for what happens if it’s not the perfect item… the whole reverse logistics side”. Rothy’s decided to make returns frictionless by partnering with Happy Returns, and the impact was immediate. “Shoppers calling into our center asking where their refund is has significantly decreased to almost none now,” Howard says, and customers opting for an exchange increased 33% with the easier process. Easy returns not only cut service costs but also save sales via exchanges.
Allbirds co-founder Joey Zwillinger has built their brand around customer-friendly policies, including a remarkable 30-day no-questions-asked trial for shoes – even worn items can be returned. This generosity, he argues, drives loyalty in the long run. In practice, Allbirds earned a reputation for “accepting returns without questions” and seamless omnichannel service, which one longtime customer credits as a key part of Allbirds’ strong customer experience. However, as Allbirds faced financial headwinds, it started quietly cracking down on serial returners. (One Reddit user described being flagged and told Allbirds wouldn’t accept future returns from them – an extreme case that led the customer to vow never to buy from the brand again.)
Other D2C players are experimenting with creative return solutions. Brooklinen’s founders, Rich and Vicki Fulop, for example, introduced a 365-day return window for bedding but with a catch – a $9.95 fee on returns to discourage frivolous refunds. They also turn returns into a marketing opportunity: Brooklinen partners with Good360 to donate lightly used returns to shelters, aligning with the brand’s community values. Allbirds donates its gently worn returns to Soles4Souls for people in need. These programs not only reduce waste but also earn customer goodwill – after all, 80% of Americans say they’d consider switching brands if the brand supports a charitable cause. As Aileen Lerch, Allbirds’ Director of Sustainability, put it, “The real [impact comes when] the end-of-life of a product is handled responsibly” – turning a painful return into a positive story for the brand.
Even Outdoor Voices and Glossier, two brands renowned for cult-like followings, have had to ensure returns don’t undermine their CX. Outdoor Voices gives customers a generous 45-day return window, balancing its premium positioning with practicality (athleisure often gets returned if sizing is off). Emily Weiss of Glossier famously focused on seamless digital UX, but with makeup and skincare, return rates are lower due to hygiene factors, so Glossier instead emphasizes quick refunds and not making customers jump through hoops for the occasional defective product. As Weiss has noted, any friction in the experience, pre- or post-purchase, is anathema to the brand’s ethos of “customer delight.” The lesson from D2C operators is clear: a well-handled return can convert an upset customer into a loyal one, while a bad return experience can permanently damage your brand.
The Return Tech Stack: Loop vs. Returnly vs. Happy Returns
Handling returns at scale requires robust software and logistics. Many D2C brands now outsource this headache to specialized returns platforms, but not all solutions are equal. Here’s a look at three leading platforms and how they differ:
- Loop Returns: A Shopify-centric returns portal that has become the default for thousands of D2C brands (Allbirds, FIGS, Princess Polly, and more use it). Loop’s philosophy is to “retain more revenue” by converting refunds into exchanges. They boast that merchants using Loop see 40% of returns turn into exchanges (store credit or different items) – crucial for salvaging sales. Loop focuses on automation (self-serve returns for shoppers) and recently became the “preferred returns provider” for former Returnly clients after a deal with Affirm. In mid-2023, Affirm (which had acquired Returnly) decided to wind down Returnly and transition its 1,500 merchants to Loop. This has made Loop one of the largest players in the space, serving over 3,700 merchants and counting. It offers features like smart fraud detection, customizable rules, and even integrations for at-home pickup or donation routes. For brands on Shopify Plus, Loop’s tight integration is a big selling point.
- Returnly (Affirm): Returnly was known for its Instant Credit feature – essentially fronting customers a refund in the form of store credit as soon as they initiate a return, so they can purchase a new item before shipping the old one back. This often saved the sale by encouraging exchanges instead of true returns. However, the model carried risk (merchants ate the cost if the return never came back) and complexity. After Affirm acquired Returnly for $300M in 2021, the service saw mixed fortunes. By 2023, Affirm’s CFO determined returns management was non-core in a tight economy and chose to sunset Returnly. Many of Returnly’s features live on via Loop’s platform now. For existing Returnly users, the key differentiator had been that instant exchange credit and a slick Shopify integration – but with Loop covering those bases and Affirm’s exit, Returnly as a standalone product is effectively gone as of late 2023. (Notably, other competitors like Narvar and AfterShip also offer instant refund options now, so the gap Returnly filled has closed.)
- Happy Returns (by UPS): Happy Returns takes a different approach – network-based reverse logistics. Instead of focusing just on software, Happy Returns built a nationwide network of Return Bar drop-off locations (in partnerships with FedEx, Staples, Ulta Beauty, and thousands of UPS Stores) where customers can return items box-free, label-free, and get an instant refund on the spot. The convenience factor is huge: “We know the majority of shoppers prefer to return items box-free and in-person, because their returns are instantly approved and they get their money back faster,” says David Sobie, Happy Returns co-founder. By aggregating returns, Happy Returns also helps merchants save on shipping costs (items from many customers are shipped back to the retailer’s warehouse in bulk). The company, founded in 2015, was acquired by PayPal in 2021, then sold to UPS in late 2023 as UPS sought to expand its returns solutions to 12,000 locations. Happy Returns services over 800 merchants (it’s popular with digitally-native brands for its high customer satisfaction, with a 93 NPS according to their claims). The platform includes a software portal for initiating returns and generating QR codes for drop-off. Key differentiator: the physical infrastructure. This can delight customers (no need to find a box or printer) and reduce “Where’s my refund?” calls to zero since refunds initiate at drop-off. On the flip side, it doesn’t focus on exchange/up-sell as much as Loop. Many large D2C brands use both Loop and Happy Returns in tandem – Loop for the online workflow and Happy Returns as a drop-off option.
The Happy Returns Return Bar network (now part of UPS) spans nearly 8,000 drop-off points across the U.S., including partnerships with The UPS Store, Ulta, Staples, and more. Such widespread infrastructure gives D2C brands a convenient, trackable way to handle returns without burdening customers or stores.
In summary, Loop shines for maximizing recovered revenue and is the new favorite of Shopify brands; Returnly pioneered instant refunds but has been absorbed after failing to achieve scale under Affirm; and Happy Returns offers a best-in-class customer drop-off experience and logistics efficiency (one-box-many-returns) that even competitors now emulate. Other notable mentions include Narvar (enterprise-grade returns portals used by big-box retailers) and newer startups focusing on returnless refunds (letting customers keep inexpensive items they want to return, to save on reverse shipping costs). As the returns space evolves, many D2C founders choose a solution that balances cost savings with customer experience, since both are crucial.
Returns as a Loyalty Driver (Not a Necessary Evil)
For all the focus on cost, it turns out that a good return experience can pay for itself by driving loyalty. Multiple surveys confirm what intuition tells us: customers reward hassle-free returns with repeat business. An NRF/Bizrate Insights study found 55% of consumers say free return shipping is a top factor in choosing where to shop online. In another poll, 72% of consumers said a simple, no-questions return policy makes them more likely to buy from that retailer again. And critically, 76% of first-time customers who had an easy returns process went on to make another purchase from that brand.
In contrast, nearly 50% of shoppers check the returns policy before even adding to the cart, and over half will abandon a purchase if the returns process looks onerous or costly. These stats underline that reverse logistics is not just an operations issue – it’s a core part of customer experience.
D2C brands have taken note. “Easy returns help with customer retention,” Rothy’s Heather Howard emphasizes, because once a shopper trusts the process and knows their correct size or fit, they tend to stick around and return items less frequently. It’s getting that first experience right that counts.
Brands like Warby Parker built their entire model on this insight: Warby’s Home Try-On program (5 pairs of glasses shipped free to try, with free returns) essentially front-loads returns as part of shopping, but it removes fear and builds trust, yielding a high repeat purchase rate and customer lifetime value.
On the flip side, a poor returns experience can permanently drive customers away. We’ve all heard horror stories of unresponsive customer service or “store credit only” return policies that feel like a trap. In the age of social media, such stories spread quickly. As one frustrated Allbirds customer vented on Reddit after a return dispute, “hell will freeze over before I order anything again from this company”. Another chimed in that after reading about return issues, they’d rather buy Allbirds through Amazon, “30 days free returns” and all, than risk going direct.
These anecdotes highlight a dangerous reality: D2C brands compete with the Amazons of the world on experience, not price, and Amazon’s return policy (usually free and easy) sets a high bar. A D2C label might win a sale with a great product, but if the post-purchase experience falters, that customer could easily defect to a marketplace or rival who makes things easier.
Thus, the best D2C operators now view returns as an extension of their brand promise. A frictionless returns process – clear policies, prepaid labels or label-less drop-offs, rapid refunds or exchanges – can increase profitability by boosting customer lifetime value. As a report on returns in retail noted, repeat customers tend to return less often because they purchase more confidently, and they spend more overall. In other words, if your returns policy can convert a first-time buyer into a loyal advocate, it will more than pay off.
Turning “Return-uary” into an Opportunity
January, often dubbed “Return-uary,” is the period when returns peak following holiday splurges. It’s a stress test for any D2C brand’s logistics. But increasingly, brands are using this as an opportunity to re-engage customers. Some tactics are gaining traction:
- Proactive communication: Brands send emails right after a purchase with fit guides, how-to-use tips, or even a gentle nudge saying, “Need to return or exchange? We’ve made it easy – here’s how.” This preempts confusion and shows customers that you stand by your product even if it doesn’t work out. It also reduces WISMR (“Where is my refund?”) contacts by setting clear expectations.
- Instant store credit incentives: Even outside of formal platforms, some brands offer a bonus for choosing store credit over a refund (for example, an extra $5 credit if you take your refund on a gift card). This keeps the revenue in-house and often leads the customer to buy something else they’ll love. According to ReturnLogic, incentivizing exchanges in this way can noticeably lift recovery rates as customers feel they’re getting a deal to stay within your brand’s ecosystem.
- Tiered return policies: Savvy D2C loyalty programs incorporate returns. For instance, a brand might give its VIP tier members free return shipping always, while charging a small fee to non-members, encouraging sign-ups, and rewarding your best customers with the most convenient service. This approach has been noted in the 2024 retail trends as a means to align return costs with customer value.
- Data-driven product improvements: The smartest brands feed return reasons back to their product teams. If “fit too small” is a top return code for a particular garment, that insight can drive a pattern adjustment or better sizing info online. Over time, this reduces returns and shows customers you listen. As one retail CEO quipped, the best return is the one that never happens, prevented by designing and selling the right product in the first place.
In conclusion, reverse logistics in the D2C space is undergoing a renaissance. What used to be seen purely as a cost center and headache is now recognized as a critical touchpoint in the customer journey. By investing in returns (whether through user-friendly portals like Loop, physical networks like Happy Returns, or generous no-hassle policies), today’s D2C brands are not just protecting their margins – they’re differentiating on experience.
A painless return can surprise and delight a customer just as much as a fast delivery or a beautiful unboxing. As we head further into 2025, the D2C founders who win on loyalty will likely be those who master the art of the return: turning each unwanted product into an opportunity to build trust, enhance sustainability, and ultimately, keep the customer coming back.