Returns, waste and the rising ESG risk for Australian retailers

This article has been adapted for the Australian retail context from content originally published by BDO USA.

Imagine this: in the near future, a customer adds a shirt from your online store to their cart. They opted for their usual size, medium, but did not read the product description, which suggests sizing up due to the product’s Stock Keeping Unit (SKU) running particularly small. Before the shirt ships, they receive an automated email saying, “Based on our data, a size larger might fit you better. Want to swap? Simply reply ‘yes’ to this email.”

The chances of a return are significantly reduced thanks to machine learning (ML) algorithms that caught the potential sizing disparity before the item shipped. This is good news because it means less waste, fewer returns, and a positive impact on your business’s bottom line. While this type of system may not currently be deployed, widespread adoption may not be as far away as you think.

Why returns are becoming a bigger issue for Australian retailers

Australian retailers are already grappling with the scale and consequences of returns, particularly as online shopping continues to grow and customer expectations for easy returns remain high. Australia Post’s eCommerce Report 2026 shows that returns are now a core part of the eCommerce experience, while interest in resale and re-commerce is also increasing as consumers look for more sustainable options.

In apparel, these dynamics are especially pronounced. Australia’s national clothing stewardship scheme, Seamless, reports that more than 220,000 tonnes of clothing continue to be sent to landfill each year, highlighting the limits of resale alone and the growing need for system‑wide approaches to product design, returns, and product end‑of‑life management.

As waste compounds, retailers are feeling mounting pressure from customers and stakeholders who are increasingly concerned about environmental degradation and are calling for more sustainable practices, influencing both purchasing decisions and investment expectations.

Keeping products out of landfill

Beyond reducing returns where possible, Australian retailers are increasingly looking to resale, reuse and recycling pathways to keep products in circulation for longer and reduce the likelihood that returned or unsold goods become waste. Now and into the future, minimising waste won’t just be about mitigating the risk of a return, but also about finding new purpose for products by, in part, instituting or engaging in resale programs and shifting consumer mindsets about what qualifies as “waste.”

To future-proof a retail business, it is critical to adopt a variety of waste reduction practices to avoid preventable returns, minimise the environmental and economic impact of unavoidable ones, and – all the while – get creative with resale strategies to help lower carbon footprints. What was once treated as an operational or customer experience issue is now being scrutinised through a governance and reporting lens.

Returns and waste are becoming a material ESG issue

Australian retailers are increasingly adopting sustainable business practices to conserve resources, as sustainability considerations are shaping regulatory obligations and capital allocation decisions. As climate risks like extreme weather, droughts and flooding intensify, retailers are expected to see environmental risks become increasingly material to business continuity. These pressures are now reinforced by Australia’s mandatory climate‑related reporting (AASB S2 Climate-related Disclosures), which are bringing greater scrutiny and transparency to how organisations measure, manage and disclose their emissions.

How returns and waste show up in ESG reporting

Under Australia’s mandatory climate-related reporting, returns and waste are increasingly captured as measurable impacts across product lifecycles, particularly within Scope 3 emissions, which cover indirect emissions generated across the value chain, such as those arising from purchased goods, logistics, and the use and disposal of products.

Defining ESG commitments and values requires a hard look at waste generation and management, including the treatment of returned and unsold goods. National data from Seamless shows that large volumes of clothing continue to enter landfill despite growth in second‑hand markets, reinforcing that waste and returns are not only operational issues but increasingly material sustainability risks.

More broadly, Australian waste data shows ongoing pressure on landfill capacity, sharpening the focus on how businesses design products, manage returns and keep materials in use for longer, all of which are becoming more visible under mandatory climate‑related reporting.

How retailers are responding today

To address some of these concerns, many retailers have introduced return fees in their return policies. In Australia, these fees typically apply to change‑of‑mind returns. However, the Australian Consumer Law requires remedies for faulty or misrepresented goods, meaning retailers must balance waste reduction strategies with clear compliance and customer trust.

There has also been an increased appetite for the resale market, allowing customers to resell their unused or unwanted items at a discounted cost, according to Insider Intelligence. Re-commerce, where retailers partner with secondary resale providers help to prevent products from simply ending up in landfills.

Currently, the retail industry is devoting significant focus and energy to recycling and circularity programs, but will that be enough as expectations and reporting requirements continue to evolve? That remains to be seen, as customer demands for environmentally-friendly practices are only a piece of the puzzle.

Retailers will need to assess and improve related procedures to comply with these standards and forthcoming disclosure regulations. Learning to reduce retail waste is imperative. To mitigate waste and the financial impact of merchandise returns, retailers will need to innovate. Faster, more energy-efficient distribution channels and predictive inventory management systems are just two ways to advance these objectives and address customer and stakeholder demands.

Machine learning and minimising returns: A perfect match

eCommerce returns typically occur when customers receive the wrong or defective product(s) or are unsure about the quality of their purchase. So, how do retailers course correct? There is a range of technologies retailers should consider implementing in their supply chains and logistics to minimise the environmental impact of unavoidable returns and, where possible, reduce returns in the first place.

For Australian retailers operating across large geographies, these tools also help reduce the costs and emissions associated with long-distance returns.

Reducing returns through data and automation

From analysing consumer data to better understanding and predicting customer sizes and preferences, machine learning (ML) is a key tool retailers can use to minimise the likelihood of returns caused by order errors and ultimately lower their carbon footprint. There are various use cases for ML, too, even when a return is necessary. For unavoidable returns, ML can be used to inform and effectively mitigate the transportation costs of shipping a product back, so the value of the return isn’t negated by shipping expenses. ML technology can also identify and help decrease fraudulent returns.

Alongside technology, clearer consumer education also plays a role. Helping customers understand sizing, product care, resale options, and the environmental impact of returns can support more considered purchasing decisions and reinforce reuse and resale pathways over disposal.

Educating consumers on circulatory programs and resale initiatives will also be key. In doing so, retailers naturally reduce the risk of waste or returns, as consumers are inclined to recycle or sell unwanted products in the second-hand market. Adopting these solutions and approaches enables retailers to better address the root causes of returns, take action to prevent them, or encourage customers to at least consider the environmental impacts of excessive returns. In doing so, retailers can improve profitability while conserving energy, time, and resources.

Reducing returns and managing waste requires more than policy changes; it calls for clear data, practical systems and alignment with broader sustainability goals.

How BDO supports sustainable retail operations

BDO’s retail and sustainability specialists work with retailers to address returns and waste as an integrated business challenge, aligning data, operational systems, and ESG requirements to support AASB S2 compliance, resilience, and long-term value.

This article is part of our series Future-proofing Australian retail.