You say that the delivery went to a local shop. Was it a click and collect store? Some of the smaller stores have stopped offering that service since the second spike of Coronavirus that resulted in a second lockdown period, so if that is indeed the case with regards to this transaction then it may be that the item was sent back as they weren't offering that service anymore. Either that or it was returned by somebody who didn't realise that he/she was supposed to accept the parcel and keep it for the buyer to collect, hence the reason why it's saying that delivery was refused.
If the buyer is asking for a refund then put a trace on the tracking number and see what that says. If it shows that the item is being returned to you then send the buyer an e-mail stating that you are more than happy to offer a full refund as soon as you have received the item back again. Once you get the item back refund the buyer's money; however, if the buyer has just contacted you via eBay Messages and asked for a refund but hasn't opened a case in the eBay Resolution Centre then ask him/her to open an eBay case to request a refund and then refund the buyer's money as soon as you receive the item back again.
