As retailers tried to win shoppers and boost sales in recent times, they made their online return policies more lenient than ever.
But those changes have come at a price.
As more consumers shop online and send back more of those orders, retailers have moved to crack down on fraud. In some cases, shoppers can send back different items than those they bought, return stolen items or claim a purchase order never got delivered when it really did.
Retailers estimate 13.7% of returns, or $101 billion value, were fraudulent last 12 months, in keeping with a survey by Appriss Retail and the National Retail Federation. The share of returns expected to be fraudulent through the peak holiday season was even higher at 16.5%, or $24.5 billion value, the survey found.
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Those goods are still flowing back in, as many retailers extend return windows for purchases made in November and December through the top of January. As retailers field those returns, fraud has grow to be their top concern, industry experts said.
“Fraud is No. 1, and it isn’t even near No. 2,” said Vijay Ramachandran, vp of go-to-market enablement and experience at shipping and mailing firm Pitney Bowes.
Processing a web-based return is already a costly proposition: It averages 21% of an order’s value, in keeping with a Pitney Bowes survey of 168 retailers. Half the respondent firms paid greater than 21%.
The associated fee of processing a return is increasing not only attributable to higher shipping and processing costs, but additionally due to rising fraud, industry experts said. As those tactics spread, many firms have began to make it tougher to return items.
“In cases where fraud is on the rise, like this 12 months, what we have seen in the info, retailers are forced to, at minimum, change their policies barely to accommodate for that potential fraud and abuse,” in keeping with Michael Osborne, CEO of Appriss Retail, which helps firms manage theft and fraud. “It does increase their costs and essentially erode their margin.”
Saks CEO Marc Metrick said on the NRF Big Show in mid-January that while the retailer has long received legitimate complaints from customers about missing items, fraudulent “merchandise not received” complaints to the corporate have greater than doubled over the past several years.
That is only one fraudulent return tactic.
Shipping back an empty box or a unique item than was received, corresponding to a box of bricks as a substitute of a television, is essentially the most common type of return fraud, in keeping with Pitney Bowes’ Ramachandran. In other cases, fraudsters could return stolen goods. In one other example, they might also dig through trash to seek out a receipt, then go into that store, find that product and take it to the return desk.
“There are examples of price arbitrage where someone will buy a product on sale or promotion, after which return it for full price to be able to get the delta of that profit back to them, principally stealing those extra dollars,” Osborne of Appriss Retail said.
“Credit laundering, too, where they’re taking things like gift cards or store credit and using that to purchase a product, then returning it and putting that a reimbursement onto a unique card, allowing them to take the cash from potentially a stolen or fraudulently obtained gift card or credit,” he added.
Appriss Retail gave CNBC an example of 1 one that netted upward of $224,000 by fraudulently returning greater than 1,000 items to 215 stores across multiple states, using quite a lot of return tactics.
Return abuse is more common
There’s also less egregious behavior, often considered return abuse relatively than fraud. It includes “bracketing” or “wardrobing.”
“Bracketing” is where a consumer buys a couple of size or color with the intent of returning whichever doesn’t work for them. While not fraud, it still puts a return expense on the retailer. “Wardrobing,” when shoppers buy an item, use it after which return it, is taken into account a much bigger issue.
Greater than half, or 56%, of consumers confess to “wardrobing,” in keeping with a survey from fraud prevention firm Forter. One in 4 consumers said they bought an item through the 2023 holiday season with the intent to return it after use.
Forter Head of Risk Doriel Abrahams said premeditated, intentional returns after use are especially problematic.
Just below half, or 47%, of those that planned to “wardrobe” through the holiday season were between the ages of 18 and 34, in keeping with Forter. “Wardrobing” happens with numerous products, not only clothing.
“I even have heard of individuals, each time they move an apartment, they buy tools, drills, whatever, put up the shelves and the things they need, after which just send it back,” Abrahams said.
How retailers are combating return fraud
Elevators inside an Ikea store in Doral, Miami.
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Bad actors that commit return fraud are hurting honest shoppers as retailers make their policies stricter to forestall abuses, those that track the tactics said.Â
“It’s really putting a damper on your personal experience, because straight away, I have a look at it just like the Plexiglas at the pharmacy. We’re having to do a version of that on our website, we’re adding friction to the client experience, to even the great actors” Saks’ Metrick said. “That is an issue for us, and we’ll must fix it.”
Return fraud has caused several retailers to tighten policies for all consumers. Some even use artificial intelligence and other technology to personalize their return policies, which could vary for every individual.
“Certain retailers offer the power so that you can have different return windows based in your known history with that retailer, essentially similar to a loyalty program status level,” said Osborne. He said some firms corresponding to Amazon have adopted that strategy, and “that is where other retailers must go.”
Amazon did indirectly say whether it’s seeing more return fraud. Company spokesperson Kristina Pressentin said, “Amazon continues to make progress in identifying and stopping fraud before it happens” and that it “uses advanced machine learning models to proactively detect and stop fraud, in addition to employs specialized teams dedicated to detecting, investigating and stopping fraud.”
Corporations have tried to maintain consumers joyful in an increasingly competitive retail environment by offering lenient return policies. Nearly three-fourths, or 73%, of shoppers select a retailer based on the return experience and 58% desire a smooth, no-questions-asked return experience across channels, in keeping with a survey by Appriss Retail and Incisiv.
But firms must attempt to strike a fragile balance between appeasing those customers and attempting to lower return costs and incidences of fraud and abuse.
“It isn’t a coincidence, that one vivid day, eight months ago, almost every company began to charge for shipping returns, or began to have more restrictive return [policies],” Forter’s Abrahams said. “The cash talks. At the top of the day, for those who’re seeing that you just’re beginning to pay an excessive amount of for restocking, or validating the items which can be being returned, or shipping costs for returns, then you definitely’re going to must hold those costs to your clients.”Â
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