Because I am a mean and cynical old lady, I would advise you to start by being less generous.
Contact the buyer with pictures. Explain that you need his opinion on where things should go.
Best option: He agrees to a Mutual Cancellation. The transaction ends. He gets refunded. You get your fees back. Both of you leave positive feedback. You toss the damaged item into the Recycling Box.
Or: he may suggest a partial discount. HE suggests it. Not you.
Or: he may decide you are trying to scam him.
If you are too generous, there is something in human nature that will push for more. With your suggestion, the bidder gets the item free, you are out the cost of packaging and shipping, the item is not what the bidder expected and he forgets the 'free' part and leaves negative feedback. And demands that you pay him for his disappointment.
I think I may have passed 'Cynical' three miles back.
And I think calling him that is an insult to the psychotic lowlife community.-- Captain Malcolm Reynolds.