Returns Dispositioning: The Secret Hack to Higher Recovery & Improved Margin

Returns are margin crushers for retailers

For years, retailers and brands have considered returns a mere cost of doing business. But as ecommerce continues to gain more ground in overall retail sales and shoppers become more comfortable with returns, the problem has become too costly to ignore—hence why so many finance leaders are asking about returns!

A recent study showed that 54% of retailers are looking to improve recovery of returned merchandise, and rank it as high as creating a better returns experience for shoppers. 

But how do retailers, brands, and 3PLs functionally recover more value from returns?

What is Returns Dispositioning?

In retail, returns dispositioning answers the question, “What do I do with this returned item?” Dispositioning returns isn’t only about the physical location or movement of returned items through the reverse supply chain — getting this right can have a major impact on financial recovery.

Most organizations have minimal disposition options or “routes”. Usually, there are three basic options for a return: 

1. return to stock (for like-new, resalable items)
2. dispose
3. or recycle 

The lack of options and flexibility for routing returns puts retailers in a precarious position to either risk sending not-new inventory to the next customer and damaging the customer experience and brand perception, or routing too much inventory to low-margin or total-loss channels and losing out on critical revenue.

However, to determine the best (aka most profitable) disposition for a return, quite a few additional things should be taken into consideration. For example:

• What condition is the item in? Is it damaged, used, or in sellable condition? 
• Is the item still in season? Where (geographically) is the item being returned? 
• What was the sale price for the item? What is its current value?
• How much of that item do you still have in stock? 
• If it’s being returned to a store, does that store carry the item or is it online exclusive?
• What is the item being returned? Is it a relevant category for resale or refurb? 
• What is the shipping cost to return this item? 

Most often, an associate in a store or warehouse has to make these subjective assessments that can lead to error-prone routing or backlogs of returns — not to mention the pressure on the associate to “get it right”. In a recent conversation with a store associate, they said they usually “walk around the store with a return to try and determine if they sell that item or not, and if not, they put it in the ship-to-DC bin.”

Optimized returns dispositioning is both the art and science behind increasing margins and improving financial recovery.

Mistakes Retailers & 3PLs Make with Returns Disposition

When the pandemic hit supply chains in 2020, many organizations cobbled together “good enough” solutions to survive the changing landscape of higher ecommerce orders… and therefore higher volume of returns. (Ecommerce has an average return rate of 17.6%, while store return rates average at 10%). Throw in omnichannel behaviors like buy online, return in-store (BORIS), and you add the complexity of differing product assortment, inventory, and sometimes policies.

Most retailers and warehouse operators try to repurpose tools they already have to process returns, whether that is a point-of-sale (POS) system or a warehouse management system (WMS). Yet, these systems were built to sell like-new, pristine inventory, not necessarily receive not-new inventory back from a shopper. Therefore the outcome often involves swivel-chair processes and system-switching in order to process a return effectively. 

Even worse, these systems lack the returns dispositioning capability that helps retailers recoup and recover more revenue, which recent research shows is a top priority for retailers in 2025.

Read more: Should I use my WMS to process returns? 

Leveraging SmartDisposition® for Better Margin

Now that the dust has settled from major supply chain disruptions, more organizations are seeing the value of investing in purpose-built software for returns, namely a returns management system (RMS). A modern RMS must be underpinned by an intelligent dispositioning and routing engine that not only helps decide what to do with a return but does so systematically by understanding the highest-margin, next-best home for that item.

A modern RMS must be underpinned by an intelligent dispositioning and routing engine that not only helps decide what to do with a return but does so systematically by understanding the highest-margin, next-best home for that item.

For example, instead of sending a returned item to a landfill (a growing concern with returns), retailers can send inventory to a recommerce sales channel. Brands like Nike, Steve Madden, and On have already launched recommerce programs and are seeing positive impact both financially and environmentally.

Additionally, a SmartDisposition® engine can help you connect faster via prebuilt connectors to more recommerce organizations like Trove, Rebelstork, and Arrive. 

This software functionality is the very thing that helped one national, multi-brand retailer transform a “total loss” category to a net-new revenue stream for the company and keep millions of pounds of waste out of landfills.

Dispositioning at any touchpoint is key

In addition to leveraging the revenue protection of dispositioning, timing is also paramount. The earlier in the process you can assess the best route for a return, the higher the revenue recovery (i.e. fewer touches, transportation costs, etc.)

In general, a modern RMS should provide the ability to disposition a return at any of the key touchpoints of the returns lifecycle:

• Touchpoint 1: Disposition at Return initiation
  • If the cost to ship an item back to a retailer exceeds the value of the item itself, it is better to offer a “just keep it” option (with the caveat that you should monitor potential abusers of this policy).
  • If you have a bathing suit returned in New York in September, perhaps you disposition and route that item to a store in Florida or California to increase the likelihood that the item can sell again at full price. 
• Touchpoint 2: Disposition at Return Method
  • If you offer in-store returns, having the ability to guide your associates on the next best path, eliminates the friction your shoppers experience when the associate isn’t sure what to do with the item, or you are hiring seasonal temp workers that may not be as familiar with your processes.
  • For omnichannel returns, providing associates with a systematic way to understand cross-channel inventory and avoid instant or exuberant markdowns. 
  • For mail-back returns, you can intelligently route the item to the closest or best store or warehouse.
• Touchpoint 3: Disposition at Returns Receipt (Store or Warehouse)
  • For slightly-damaged returns received in a warehouse, you can disposition to a value-added services team and then relist the item at full price in as few as 1 business day. (i.e. remove a scuff from a shoe, relist at full price)
  • For all returns, avoid the binary thinking of return to stock, or dispose/recycle. Unlock the ability to disposition to a variety of resale channels (based on category, condition, likelihood of resale, inventory levels, and more)
  • For items that are gently-used, but still salable, you can relist instantly on owned recommerce channels (i.e. via Trove, Rebelstork, Arrive) or instantly route to third-party recommerce partners like Bstock.

Summary

A modern returns management system (RMS) with an intelligent dispositioning and routing engine (like Optoro’s proprietary SmartDisposition®) can help retailers systematically determine the most profitable destination for each returned item, increasing revenue recovery and minimizing losses. This can include options such as reselling through recommerce channels, offering “keep it” options for low-value items, or routing items to different locations based on seasonality and demand.