Retail return fraud increases as key holiday deadline approaches –

Retail return fraud increases as key holiday deadline approaches –

As more consumers shop online and return more of those orders, retailers are cracking down on fraud. According to industry experts, this has become their biggest concern in the returns process.

“Fraud is No. 1 and not even close to No. 2,” said Vijay Ramachandran, vice president of go-to-market and experience at shipping and shipping company Pitney Bowes.

Retailers expect 16.5%, or $24.5 billion, of holiday returns this year will be fraudulent, according to a survey by Appriss Retail and the National Retail Federation. That's higher than the 13.7% average estimated for all of 2023.

Source: Appriss Retail/National Retail Federation

Processing an online return is already a costly affair: it costs an average of 21% of the order value, according to a Pitney Bowes survey of 168 retailers. Half of the companies surveyed paid more than 21%.

The cost of processing a return is rising not only because of higher shipping and handling costs, but also because of increasing fraud, industry experts say.

“In cases where fraud is on the rise, such as what we have seen in the data this year, retailers are forced to make at least minor changes to their policies to account for this potential fraud and abuse,” said Michael Osborne. CEO of Appriss Retail, which helps companies combat theft and fraud. “It actually increases their costs and essentially eats into their margin.”

Saks CEO Marc Metrick said at the NRF Big Show in mid-January that while the retailer has long received legitimate customer complaints about missing items, fraudulent “merchandise not received” complaints to the company have increased in recent years would have doubled.

This is just a fraudulent return tactic.

According to Ramachandran of Pitney Bowes, returning an empty box or an item other than the one you received, such as a box of bricks instead of a television, is the most common form of return fraud. In other cases, fraudsters may return stolen goods. In another example, they could too Search the trash for a receipt, then go into the store, find the product and bring it to the return counter.

“There are examples of price arbitrage where someone buys a product on sale or in a promotion and then returns it at full price to get the delta of that benefit back, essentially stealing the extra dollars,” said Osborne of Appriss Retail.

“Also credit laundering, which involves taking things like gift cards or store credit to purchase a product, then returning it and putting the money back on another card, allowing you to take the money from a potentially stolen or stolen product.” fraudulently obtained gift cards or credit,” he added.

Appriss Retail gave CNBC an example of an individual who earned more than $224,000 by fraudulently returning more than 1,000 items to 215 stores in multiple states using various return tactics.

Source: Appriss Retail/National Retail Federation

There is also less egregious behavior that is often viewed as return abuse rather than fraud. It includes “bracketing” or “wardrobe.”

Bracketing is when a buyer purchases more than one size or color with the intent of returning what doesn't work for them. Although this is not a scam, the retailer still incurs return shipping costs. “Wardrobe,” when shoppers purchase an item, use it, and then return it, is seen as a bigger problem.

According to a survey by fraud prevention company Forter, more than half (56%) of consumers admit to “wearing clothes.” 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 intentional, intentional returns after use were particularly problematic.

Almost half, or 47%, of those who planned to “wardrobe” wear during the holiday season According to Forter, they were between 18 and 34 years old. “Wardrobing” occurs on many products, not just clothing.

“I've heard of people every time they move a home, they buy tools, drills, etc., put up the shelves and the things they need, and then just ship them back,” Abrahams said.

Elevators at an Ikea store in Doral, Miami.

Jeff Greenberg | Universal Images Group | Getty Images

Criminals committing returns fraud are harming honest shoppers as retailers tighten policies to prevent abuse, those behind the tactics say.

“It really puts a damper on your own experience because right now I look at it like the plexiglass at the drugstore. We need to do a version of this on our website, we add friction to the customer experience, even to the good actors,” Saks' Metrick said. “This is a problem for us and we need to fix it.”

Returns fraud has led to several retailers tightening their policies for all consumers. Some even use artificial intelligence and other technologies to personalize their return policies, which can vary from person to person.

“Certain retailers offer you the ability to set different return windows based on your known history with that retailer, which is essentially a loyalty program tier,” Osborne said. He said some companies like Amazon have adopted this strategy and “that's where other retailers need to go.”

Amazon hasn't directly said whether there is more return fraud. Company spokeswoman Kristina Pressentin said: “Amazon continues to make progress in identifying and stopping fraud before it happens” and that the company “uses advanced machine learning models to proactively detect and prevent fraud, in addition to employing specialized teams dedicated to detecting, investigating and stopping fraud.”

Companies have tried to keep consumers happy in an increasingly competitive retail environment by offering lenient return policies. According to a survey by Appriss Retail and Incisiv, nearly three-quarters, or 73%, of shoppers choose a retailer based on the return experience and 58% want a seamless, no-questions-asked returns experience across all channels.

But companies must try to find a delicate balance between satisfying these customers while trying to reduce return shipping costs and instances of fraud and abuse.

“It's no coincidence that one fine day eight months ago, almost every company started charging for return shipping or making returns more restrictive [policies]said Abrahams of Forter. “The money talks.” At the end of the day, if you find that you are paying too much for restocking, validating returned items, or shipping costs for returns, you must withhold those costs to your customers.”

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