The retail industry’s current returns crisis goes back more than 170 years.

It begans with what we now call a consumer-centric marketing strategy. In 1852, an entrepreneur named Potter Palmer, whose Palmer’s Department Store eventually became Marshall Field, introduced the “no questions asked” money-back guarantee.

These guarantees and frictionless exchanges became part of the fabric of the retail landscape. As the catalog industry – led by Sears, Roebuck and Co. – took off, they became even more important for marketers seeking to to overcome the “I need to touch it” chasm.

Flash forward, and the explosive growth of e-commerce, driven by ever-liberalizing return policies, has turned reverse logistics into one of the retail industry’s biggest challenges. 

Newton’s Third Law in Action states that for every reaction there is an equal and opposite reaction. The reaction to Potter Palmer’s innovation has been an unprecedented spike in returns. 

In 2023 alone, U.S. retailers saw $743 billion worth of merchandise returned — amounting to 14.5% of total retail sales. The situation was even more severe in e-commerce, where 17.6% of all online purchases were returned.

Millions of returned products, many of them non-serialized, are also prime targets for fraud. The National Retail Federation estimates that return fraud cost U.S. retailers $101 billion in 2023, with tactics ranging from wardrobing and receipt fraud to cross-retailer arbitrage.

Adding to the crisis is what happens after the product is returned. The European Environment Agency (EEA) estimates that, on average, one-third of all returned clothing bought online ends up being destroyed, due to damage or repackaging issues.

Operationally, the system isn’t built to absorb this cost and complexity. The supply chain was designed for one-way movement — from manufacturer to warehouse to store to customer. Reverse logistics introduces chaos into that flow. 

Consider the time-consuming and circuitous journey of a single sweater. It gets dropped off at a partner return location, whereupon the consumer gets an immediate refund. The sweater then gets shipped to the return center, where it is manually graded and either ends up getting destroyed or put back into inventory.

The whole process can take more than three weeks. This means the retailer is out the cash while at the same time absorbing non-trivial costs for shipping, labor and processing — which can add up to 66% of the original product’s price.

As the cost of goods rises, and tariffs pose a particular threat, the issue of reverse logistics becomes even more of an existential problem.

The broad economic damage of the return economy needs to be addressed with a revolution in visibility, tracking, and automation. Enter ambient IoT (internet of things). The innovation begins with Bluetooth-enabled IoT pixels — postage-stamp-sized tags that cost just pennies but deliver massive operational insight.

The tags allow for live, item-level tracking across pickup, staging, sorting and grading, all without the need for manual scanning. This is especially critical because much of today’s return flow still depends on visual scanning systems, which often break down when returned products arrive without their original packaging. 

Ambient IoT removes that dependency by embedding intelligence directly on the item, detecting when products go idle, dwell too long, or fall outside of designated workflows. In the process, it turns a reverse-logistics black hole into a fully illuminated system.

The tool provides real-time, fully automated insight that enables proactive recovery, intelligent restocking and faster reintegration of returned products into salable inventory. It also removes the need for “lean water spiders,” the term for staff who manually track and supervise the reverse logistics process.

This isn't a far-off vision. ABI Research forecasts that ambient IoT device shipments will reach 1.1 billion units in 2030.

The convergence of consumer expectations and modern ecommerce behaviors has brought retail to an inflection point. But the generous promise of “no questions asked” returns doesn’t need to be abandoned — it needs to be reinvented with better visibility and more automation.

As ambient IoT becomes more widely deployed by major retailers, it will finally provide the visibility and automation required to stem the return tide — saving billions, restoring margins, and strengthening trust.

The ability to align Potter Palmer’s vision of a “no questions asked” guarantee and an efficient return system has finally emerged.

Matan Epstein is vice president, strategic accounts with Wiliot.