Holiday gift returns are getting tougher as retailers add new fees and deploy AI

Bought grandma the wrong size sweater for Christmas?

If so, think twice about the best way to return it.

Most large retail stores are now charging fees for mail-in returns, according to industry experts. The move is intended to curb return policy abuse, such as wardrobing, which is customers buying items for short-term use. Retailers are also targeting outright fraud, including scammers who send empty boxes or swapped-out merchandise.

“Retailers are saying that this can strain customer support, [and] obviously their margins, because retailers are then dealing with the refund requests,” said Stephanie Carls, a retail insights expert at RetailMeNot, an online provider of coupons and money-saving tips.

 Retailers estimate that $849.9 billion in merchandise, accounting for 15.8% of total annual sales, will be returned this year, with roughly 9% of those returns being fraudulent, according to the "2025 Retail Returns Landscape" report published in October by the National Retail Federation, a Washington, D.C.-based trade group, and Happy Returns, a UPS-owned company that manages in-person product returns on behalf of mostly online retailers.

Though more retailers are slapping fees on returns of online purchases, shoppers can still avoid return fees by visiting a physical store. And many retailers have extended return windows for holiday purchases to Jan. 31.

But the share of retailers charging a fee for at least one return option rose from 66% in 2024 to 72% this year, according to the NRF and Happy Returns report, which polled 358 professionals working in e-commerce for large retailers.

Clothing seller Madewell is among the retailers that added fees this year, launching a $7.50 return shipping charge in August for all but its Icon loyalty members who spend more than $1,000 annually.

Macy’s charges $9.99 for shipped returns of merchandise, but the service is free for members of its customer loyalty program, Star Rewards.

Off-price retailers TJ Maxx, Marshalls and Sierra charge $11.99 for returns of merchandise by mail to cover shipping, according to their parent company, The TJX Companies in Framingham, Massachusetts.

Best Buy charges a $45 restocking fee on returns of open packages of most activatable devices, including non-prepaid cellphones and cellular tablets, which must be returned within 14 days of purchase.

The Richfield, Minnesota-based electronics retailer also charges a restocking fee of 15% of the purchase price for other opened products, such as drones, digital cameras and camera lenses, which must be returned by Jan. 15 if they were bought on or after Oct. 31.

While retailers are aiming to reduce fraud and wasteful returns, they run the risk of turning off customers with fees, experts said.

“From free return shipping to instant refunds, customers expect a seamless process — and they’re willing to walk away from retailers that fail to deliver," said the Retail Returns Landscape report, which surveyed more than 2,000 consumers who had returned at least one online purchase in the previous year.

About 57% of shoppers surveyed said they wouldn’t shop with a retailer after being charged for a return, up from 40% in 2024.

Beyond fraud, retailers are increasingly using fees to offset rising shipping expenses and the impact of inflation and tariffs on inventory prices, Carls said.

Returned items often result in a partial or total loss if they are damaged or opened, as they prevent the retailer from selling the product to another customer.

To ensure a full refund, Carls advises shoppers to check return policies before buying and always request a gift receipt if buying holiday presents.

Retailers' AI-powered crackdown

Happy Returns started rolling out artificial intelligence tools in November to help its retail clients tackle holiday return fraud, as a growing number of retailers invest in technology to combat losses.

The company processes box-free, label-free returns for hundreds of retailers, including Shein, Gap and Under Armour. Customers receive a QR code online, then drop items at UPS, Staples or Ulta Beauty stores, where employees scan the QR codes and process the returns.

AI assesses return risk instantly with various methods, such as checking if a shopper's email address is linked to multiple accounts or if a return was initiated before the product was even delivered, Happy Returns CEO David Sobie explained.

If a return is approved, the retailer is notified electronically and the refund is typically immediate.  But refunds for returns suspected of being fraudulent are delayed and that merchandise is flagged for further review.

All returned items, including those suspected of being fraudulent, are sent to one of Happy Returns' three regional hubs for bulk shipping back to retailers.  But Happy Returns has begun auditing flagged merchandise with Return Vision, an AI camera system being deployed in phases that catches “decoy” returns — items different from what was purchased.

While only 1% of returns dropped off at UPS, Staples or Ulta are flagged, 10% of those are confirmed fraudulent, averaging $261 per instance, according to Happy Returns.

Processing merchandise returns correctly, quickly and without requiring customers to print out labels can help retailers build customer loyalty, Sobie said.

“Convenience and choice is really what customers want," Sobie said. "You know, ‘Make it easy for me. Make it fast. Get my money back.'"

He expects the company’s peak season, December through early January, to be 2.5 times busier than last year.

“This is kind of our Super Bowl,” Sobie said

By Tory N. Parrish

tory.parrish@newsday.comToryParrish1

Tory N. Parrish covers retail and small business for Newsday. She has worked at the Pittsburgh Tribune-Review and Observer-Dispatch in Utica, N.Y.