Shoppers are increasingly exploiting return policies with various scams to defraud companies, and it is costing retailers billions.
While retailers have tried to mitigate returns, they amounted to $743 billion in 2023. Of that, about $101 billion was fraudulent, according to the National Retail Federation.
This problem is getting more sophisticated as shoppers grow increasingly duplicitous, such as returning empty boxes, using fake or altered receipts or ripping key components from electronics before returning the item. The challenge for retailers is how to crack down and limit return polices without alienating customers.
Blue Yonder’s 2024 Consumer Retail Returns Survey found that more than 90% of respondents admitted that a lenient return policy influences their buying decisions. Additionally, stricter policies are deterring many shoppers, particularly Gen Z and millennials, from making purchases at all.
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Arun Sundaram, vice president and senior equity analyst at CFRA Research, told FOX Business that return fraud remains an issue for retailers, particularly because of the “growth of e-commerce and the flexible return policies that often come with it.”
This type of fraud not only puts pressure on margins but disrupts inventory planning and drives up operating costs, according to Sundaram.
“In recent years, we’ve seen many retailers ramp up investments in data and analytics to detect patterns and flag suspicious return activity. Still, striking the right balance between preventing fraud and keeping a positive customer experience is an ongoing challenge,” Sundaram added.
Gaurav Saran, CEO of ReverseLogix.com, told FOX Business that companies started offering competitive return policies such as free returns and 30- or 60-day return policies as shoppers became more reliant on online shopping. In turn, it encouraged more shoppers to buy with the brand, but it also paved the way for a select few to take advantage of the situation.
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One of the most common scams, according to Saran, is “wardrobing.” Consumers purchase clothing with the intent of returning it after they use it. The issue with this type of fraud is it can be difficult to detect, though it is one of the most common problems that clothing retailers have, according to ReverseLogix.com’s website.
In some cases, customers will return an empty box claiming the item was missing when they received it. This is known as the “empty box” scam. Retailers that don’t weigh packages before processing returns may not notice the fraud until after the customer has already been refunded, according to Saran.
Another tactic his company has noticed is called “bricking.” This is when someone removes key components from electronics before returning the item. While the product looks intact on the outside, it is useless. Retailers that don’t check returned items carefully can end up selling worthless goods.
Saran’s developed an end-to-end return management system to mitigate these crimes by helping companies configure return processing and even handle repairs. It helps companies ensure what a customer said they were going to return and the condition they are returning it in is in line with the return policy. If there appears to be fraudulent activity, the company will get notified and can adjust its return policy specific to a customer.
He works with various companies, including Brooks, Wilson and Samsonite.
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