The Retail Industry Is Fighting Back Against Returns Fraud
Facilitating consumer returns is a necessary evil in the retail industry. However, this logistical necessity is made even more complicated when a portion of those returns are fraudulent.
According to recent research by the NRF, of the 11% of retail products which are returned, 8% will be sent back to the point of origin fraudulently. The research in question focused on brick-and-mortar retailers, but it seems likely that the figure would be just as high, if not higher, when ecommerce is considered as well. Online selling platforms often force very generous returns policies on those who retail through them, which makes fraudulently returning products even easier for scammers.
Combatting returns fraud must, therefore, be a top priority for the reverse logistics industry, unless brands want to see their profits suffer.
While many fraudulent returns are carried out by individuals, there is also a lucrative organized crime industry which revolves around the practice.
The NRF noted that "organized retail crime (ORC) losses are a growing problem, with 92% of companies surveyed reporting they had been a victim of ORC in the past year, with 71% reporting that ORC incidents were increasing. Losses averaged $777,877 per $1 billion in sales, up 7 percent from last year's previous record of $726,351. With such forces at work, the retail industry needs to employ ever more sophisticated strategies to combat it."
#1 Holiday Seasons
Naturally, holiday seasons such as Christmas offer a massive influx of business for retail brands. However, thanks to unwanted gifts, the number of products being returned also goes through the roof.
The increased pressure retailers are under during these times means they cannot devote the same amount of time to thoroughly assessing the legitimacy of all the returns coming through their warehouses - making these periods an optimum time in which returns fraudsters can operate.
Brands combat this by implementing a temporarily modified returns policy for the holiday season. By restricting the period during which products can be returned following a holiday like Christmas, honest customers will be motivated to act quickly and there won't be much of a chance to use the item fraudulently before returning it.
#2 Enforce a Strict Receipt Policy
Many returns scammers rely on retailers being overly generous when it comes to proof of purchase requirements.
Scammers will often attempt to scam a retailer by attempting to return products which did not originate there. The motivations for this may include being desperate for money and not wanting to wait to return the product to an online seller, or the refund was refused for some reason at the legitimate origin - unreasonable damage or wear and tear to the product, for example.
Requiring a receipt to be presented when requesting a refund can help your business check returns against records and make sure it was you that made the sale.
One of the most irritating forms of returns fraud which plagues the fashion industry is the practice known as wardrobing. Wardrobing refers to the concept of buying an item of clothing for a specific event, wearing it to that event, and then returning it for a full refund the very next day, citing some other reason for the return.
Because they've often been worn to parties, or some similar event, the items frequently cannot be resold and so represent a significant source of lost revenue for fashion brands.
Technology can help solve the wardrobing issue. Gadgets such as the Shark Tag work by providing a way for customers to prove the item hasn't been used before returning it. The tag is designed to be unsightly but is easily removed by the customer when they get home. However, once removed, the tag cannot be reattached.
This means clothing retailers can alter their returns policy to state that returns will only be accepted if the Shark Tag is still attached.
#4 Restocking Fees
Like wardrobing, there is a common practice of people purchasing big-ticket items like televisions, using them to watch a major event like the Super Bowl, then returning said item for a full refund.
Retailers of these kinds of items can help combat this by charging a restocking fee for returned items. This additional cost will make scammers think twice about targeting your brand for these kinds of schemes.
Returns fraud will likely remain a thorn in the side of the retail industry. However, by employing some or all the strategies detailed above, the threat from fraudulent returns can be mitigated as much as possible.
Returns fraud is set to be a hot topic at Consumer Returns Management 2019, taking place this October at the Hyatt Regency Austin, Texas.
Download the agenda today for more information and insights.