Returned goods sit on a pallet at a CH Robinson warehouse in Indianapolis used by B-Stock Solutions. B-Stock works with retailers to auction these items. Amanda Lasky | CNBC

As online sales boom, there's an inevitable side effect: More merchandise is getting returned, boosting costs and complexity for retailers. The shift can be staggering. "Shoppers return 5 to 10 percent of what they purchase in store but 15 to 40 percent of what they buy online," David Sobie, co-founder and CEO of Happy Returns told CNBC. Not being able to see an item in person accounts for part of the difference, but consumers also shop differently online than in-store, Sobie said. They may order multiple sizes or colors to try on at home, and then ship or take back what they don't want, with shipping paid for by the retailer, both ways in some cases. With costs mounting, understanding why shoppers return items and dealing with the logistics is a key issue that retailers are only beginning to tackle. A number of new businesses are sprouting up to try and wrangle the problem for retailers. These companies say higher rates of online shopping and more lax return policies are factors contributing to the rise of returns. However, there are more options for what to do with the returns, which can help to keep tons of unwanted items out of landfills and save retailers' profit margins. Average return rates vary by category, but clothing and shoes bought online typically have the highest rates with 30 to 40 percent returned. Eric Moriarty, vice president of B-Stock Solutions, a liquidation marketplace said as e-commerce becomes a bigger percentage of retail sales, more returns will be coming back. "In 2018, it will be somewhere in the area of $400 billion worth of inventory ... with $90 [billion] to $95 billion returned post-holiday," he said. In the next several years, as e-commerce grows globally, "the amount of returns is going to be over a trillion dollars a year," Tobin Moore, CEO and co-founder of reverse logistics technology company Optoro, said.

More lax return policies

Another factor adding to rising returns is more relaxed return policies. As retailers fight for market share in an increasingly competitive industry, return policies are allowing longer windows to bring back items. Also, retailers are often accepting online returns in stores, even if the items were never sold at the store. According to a Happy Returns survey, nearly three-quarters of Americans say returns are their least favorite part of shopping online, so an easy return system is crucial for retaining shoppers. More items are returned during and after the holiday season than any other time of year. UPS estimates 1 million returns were made daily during December leading up to Christmas, largely from consumers that shopped early to take advantage of promotions and faster shipping options. But once the returned goods are back in the hands of a retailer, less than half are resold at full-price, according to Gartner Research. That translates to retailers losing out on 10 percent of sales during the holiday season, a trend that has not improved over the last couple years, and is expected to get worse. While returns are a big problem for retail, only about 30 percent of the country's largest retailers quantify its full cost and only 23 percent use some kind of technology or software to better manage it, according to Optoro. In aggregate, "retailers are losing billions and billions of dollars on the way returns are managed," Moore said. "A lot of retailers can add 5 percent to their bottom line by better optimizing the management and resale of their returns."

Where does it all go?

"Many retailers end up throwing away over 25 percent of their returns," Moore said. "Holistically, that ends up being over 5 billion pounds of goods that end up in landfills a year from returns." He estimates over the next several years that could swell to 10 billion pounds of returns in landfills around the world. For the 75 percent that doesn't go to a landfill, the condition of the returned item, the timing of when it's returned, and its location are all key factors in determining what comes next. Some merchandise is inspected and immediately restocked. Some has to be sent for refurbishing or repackaging. Other goods go to a liquidation channel where the items are repurchased by a reseller or consumer. There are occasional scenarios where returned goods are taken apart and components are recycled, or even "upcycled," like turning shoes into a racetrack, Moore said. Return scenarios have gotten more complicated. More relaxed return policies can mean shoppers return items after a season ends, making it hard to sell a winter coat in March, for example. Plus, the internet offers retailers an "endless aisle." That means many items are sold online only. If those purchases are returned to a store, the retailer will have a few choices: ship it back to a distribution or processing center; try to resell it as a one-off item in the store; liquidate, donate or recycle it or throw it away. About 70 percent of high-end apparel can typically be restocked and resold, Moore said. If it's a consumer electronics item or home and garden item that was sealed and isn't anymore, or has any data on it, it has to be repackaged, refurbished and wiped of data. Only around 30 percent of those returned items can go back into stock immediately.

Rethinking how returns are handled