In recent years, retailers have loosened their online return policies more than ever in an effort to attract shoppers and increase sales.
But these changes came at a cost.
As more consumers shop online and return more orders, retailers are cracking down on fraud. In some cases, shoppers may send back different items than they purchased, return stolen items, or claim that they never actually received the item they purchased.
Retailers estimate that 13.7% of returns, or $101 billion worth, were fraudulent last year, according to a study by Appriss Retail and the National Retail Federation. According to the study, the percentage of returns expected to be fraudulent during the busy holiday season was even higher at 16.5%, or worth $24.5 billion.
These items are still coming in as many retailers have extended return periods for items purchased in November and December until the end of January. Industry experts say fraud has become a top concern as retailers deal with these returns.
“Fraud is No. 1, but it’s not close to No. 2,” said Vijay Ramachandran, a veteran vice president of go-to-market support at Pitney Bowes, a shipping and mailing company.
According to a Pitney Bowes survey of 168 retailers, processing online returns is already costly, averaging 21% of the order value. Half of the responding companies were paying more than 21%.
Industry experts say the cost of processing returns is rising not only due to higher shipping and processing costs, but also due to increased fraud. As these techniques became more widespread, many companies began to tighten their rules on product returns.
Michael Osborne said, “When fraud is on the rise, as we’ve seen in our data, as it has been this year, retailers must at least We need to make slight changes to our policies.” He is CEO of Appriss Retail, which helps businesses manage theft and fraud. “It increases costs and essentially erodes margins.”
Saks CEO Mark Metric said at the NRF Big Show in mid-January that the company has long received legitimate complaints from customers about out-of-stock items, but “products never arrive” to the company. He said the number of fraudulent complaints has more than doubled in the past few years.
It’s just a fraudulent return tactic.
Pitney Bowes’ Ramachandran said the most common form of return fraud involves returning items that are not what you received, such as an empty box or a box of bricks instead of a TV. In other cases, fraudsters may return stolen items. In another example, you could also do something like this: You rummage through the trash, find the receipt, enter the store, find the item, and take it to the return desk.
“There are examples of price arbitrage where someone buys something on sale or promotion and then returns it at full price to recoup the difference in profits and basically steals the extra money,” said Osborne of Appriss Retail. Ta. .
“Credit laundering is also happening, where you take things like gift cards or store credit, use them to buy things, return them and put the money back on another card, and then steal money from the stolen card or credit card. You can get your gift card or credit back if you fraudulently obtained it.”
Appriss Retail gave CNBC an example of an individual who fraudulently returned more than 1,000 items to 215 stores in multiple states using a variety of return tactics, resulting in more than $224,000 in profits.
Return abuse becomes more common
There are also less egregious acts, which are often considered return abuse rather than fraud. This includes “brackets” or “wardrobes”.
“Bracketing” is when a shopper purchases multiple sizes or colors with the intention of returning something that doesn’t fit. It’s not a scam, but the retailer will incur return costs. The “wardrobe” is seen as a bigger issue as shoppers purchase, use, and then return products.
More than half (56%) of consumers confess to their “wardrobes,” according to a survey by fraud prevention firm Fortor. One in four consumers said they purchased an item during the 2023 holiday season with the intention of returning it after use.
Doriel Abrahams, head of risk at Forter, said planned and intentional returns after use were particularly problematic.
Just under half (47%) plan their wardrobe during the holiday season They were between the ages of 18 and 34, Forter said. “Wardrobe” occurs not only in clothing, but also in many products.
“I’ve heard stories of people who every time they move apartments, they buy tools and drills and stuff and ship it back with shelves and things they need,” Abrahams said.
How retailers are combating return fraud
An elevator inside an IKEA store in Doral, Miami.
Jeff Greenberg Universal Images Group | Getty Images
As retailers tighten policies to prevent abuse, unscrupulous return fraudsters are harming honest shoppers, according to people who track the scam.
“It really puts a damper on your own experience, because right now I look at it like drugstore plexiglass. We have to do a version of that on our website. “This always adds friction to the customer experience, even with great actors,” said Sacks’ director Metric. “It’s a problem for us and we need to solve it.”
Return fraud has caused some retailers to tighten their policies for all consumers. Some use artificial intelligence and other technologies to customize return policies, which can vary from person to person.
“Some retailers offer the ability to set different return windows based on your known history with that retailer, which is essentially equivalent to a loyalty program status level,” Osborn said. said. He said some companies, such as Amazon, have adopted that strategy and “other retailers should go there too.”
Amazon did not directly say whether return fraud is on the rise. “Amazon continues to advance our efforts to proactively identify and stop fraudulent activity,” company spokeswoman Christina Pressentin said in a statement. We detect and prevent, and we employ specialized teams dedicated to detection, investigation and interdiction.” scam. “
Companies have sought to maintain consumer satisfaction by offering generous return policies in an increasingly competitive retail environment. Appriss Retail and Incisiv research shows that nearly three-quarters, or 73%, of shoppers choose a retailer based on their return experience, and 58% prefer a smooth, no-questions-asked return experience across channels. I hope.
But companies must strike a delicate balance between placating these customers and reducing return costs and rates of fraud and fraud.
“It’s no coincidence that one bright day eight months ago, almost every company started charging return shipping or tightening return restrictions. [policies]” said Forter’s Abrahams. After all, if you find yourself starting to spend a lot of money on inventory checks for returned items and return shipping costs, you’ll have to keep covering those costs. to your clients. ”
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