Retailers Slug it Out Against Rising Return Fraud
Customers exploiting retail return policies through selective, incomplete returns
The ceaseless exploitation of return policies by unscrupulous shoppers is costing retailers billions, with fraudulent returns reaching an estimated $101 billion in 2023, according to the National Retail Federation. With intricate scams on the rise, retailers grapple with protecting their margins while avoiding alienating customers.
According to Gaurav Saran, CEO of ReverseLogix.com, return fraud has grown more sophisticated as shoppers invent increasingly deceptive tactics. These include returning empty boxes, using fake or modified receipts, and stripping essential components from electronics before returning the items.
While retailers strive to curb returns, they still cost a staggering $743 billion in 2023. Shoppers claim that lenient return policies can influence their purchasing decisions, as revealed by Blue Yonder's 2024 Consumer Retail Returns Survey. Stricter policies may deter younger shoppers, making it a delicate balance for retailers.
Arun Sundaram, vice president and senior equity analyst at CFRA Research, emphasizes that return fraud remains a concern, especially in the era of e-commerce and more flexible return policies. This type of fraud places pressure on retail margins, disrupts inventory planning, and drives up operating costs.
To battle this problem, retailers have been investing in data and analytics to identify patterns and flag suspicious return activity. However, striking the right balance between fraud prevention and maintaining a positive customer experience is an ongoing challenge.
Saran's company, ReverseLogix.com, has developed an end-to-end return management system to combat these crimes. The system helps companies configure return processing and manage repairs. By ensuring items are returned as described and in the specified condition, the company can prevent fraud and adjust its return policy based on individual customers' behavior.
Common scams include "wardrobing," where customers purchase clothing with the intent of returning it after use, and the "empty box" scam, where shoppers return an empty box claiming the item was missing upon delivery. Retailers can mitigate such scams by verifying items at the point of return and using tamper-proof labels.
By adopting a multilayered strategy that balances security with customer satisfaction, retailers can effectively combat return fraud without sacrificing the shopping experience. This strategy includes implementing advanced fraud detection tools, enhancing return processing and verification, adopting flexible yet secure return policies, blocking fraudulent customers, training staff, and communicating clearly with customers.
The ongoing issue of return fraud, particularly in the e-commerce sector, is causing concern among economists and investors, as it strains retail margins and disrupts inventory planning, thereby driving up operating costs. To counteract this, funds are being invested in technology and data analytics to develop sophisticated return management systems, ensuring a balance between fraud prevention and maintaining a positive customer experience. In the general-news sector, reports reveal that senior equity analysts urge retailers to adopt a lifestyle that prioritizes both security and customer satisfaction to combat return fraud without compromising the shopping experience. For instance, investment in advanced fraud detection tools, enhanced return processing and verification, and clear communication with customers are crucial strategies that companies are implementing.
