Return fraud poses a significant challenge for retailers, impacting their profitability and operations. As customers take advantage of lenient return policies, dishonest individuals engage in various fraudulent activities. Understanding the different types of return fraud and implementing effective prevention strategies is crucial for retailers to safeguard business interests.
What is return fraud?
Return fraud involves the act of deliberately deceiving a retailer in order to obtain a refund or an undeserved benefit through the return process. It typically includes actions such as returning stolen merchandise, using counterfeit receipts, altering or switching price tags, claiming an item was not received, or exploiting lenient return policies.
Return fraud is a large problem for retailers.
The days of relying on one-size-fits-all return policies are in the past.
The most recent Consumer Returns in the Retail Industry Report, jointly published by NRF and Appriss® Retail, unveils a startling fact: Retail returns were more than $816B last year, and nearly $85B of that was fraudulent.
Eight types of return fraud
- Wardrobing: Wardrobing fraud occurs when customers purchase items with the intention of using them and then returning them for a full refund. This practice is prevalent in industries where products are easily worn or used temporarily, such as clothing and electronics.
- Price switching: Fraudsters engage in price switching by swapping labels or packaging of lower-priced items with higher-priced ones before making a return. This deceptive tactic allows them to pay less at the point of sale and secure a refund based on the higher-priced item.
- Return of stolen merchandise: Thieves steal merchandise from stores and attempt to return the items for cash or store credit. They may resort to forging receipts or providing false identification to deceive retailers.
- Counterfeit returns: Fraudsters return counterfeit or fake items, claiming they are genuine products. Retailers can unknowingly refund the value of counterfeit goods, resulting in financial losses.
- Return of used or damaged goods: Dishonest individuals exploit retailers by returning used or damaged items while falsely claiming they received them in that condition. They seek a refund or replacement for items they themselves damaged.
- Gift card fraud: This form of fraud involves exploiting return policies for gift cards. Fraudsters purchase gift cards, utilize the balance, and then return the card, falsely claiming it was never used. This allows them to obtain the full value of the gift card without paying for it.
- Return abuse: Some individuals abuse return policies by making excessive returns or returning items without a valid reason. They treat retailers as temporary rental services, causing financial strain and operational disruption.
- Claims fraud: Claims fraud—or refund fraud—such as false Did Not Arrive (DNA) and Item not Received (INR) claims, occurs when someone intentionally declares that a purchased item never arrived, even though the individual actually received it. This fraudulent behavior can result in significant financial losses for retailers, comparable to the impact of chargebacks.
Is return fraud illegal?
Yes, return fraud is considered a criminal activity.
Return fraud is illegal because it involves dishonesty and deceit, resulting in financial losses for retailers. It can be prosecuted as a form of theft, fraud, or larceny, depending on the jurisdiction and the specific circumstances of the case.
Retailers often implement measures to detect and prevent return fraud, such as monitoring return patterns with AI, requiring identification for returns, or implementing dynamic return policies.
Retailers can leverage advanced technologies and data analytics to identify suspicious return patterns, track serial returners, and detect anomalies that may indicate fraudulent activities.
How to prevent return fraud
- Implement dynamic return policies: The days of relying on one-size-fits-all return policies are in the past. Understanding the unique needs of each customer at the point of return and providing targeted incentives tailored to their situation is the key to combatting return fraud effectively. By doing so, retailers can not only save costs but also create a positive shopping experience that fosters long-term customer loyalty.
- Require identification for returns: Requiring identification during the return process helps retailers track transaction history, detect patterns of abuse, and discourage repeat offenders.
- Utilize technology and data analytics: Retailers can leverage advanced technologies and data analytics to identify suspicious return patterns, track serial returners, and detect anomalies that may indicate fraudulent activities. Solutions such as Appriss Retail’s Engage use data science and AI to protect profits online and in-store, all while reducing friction and enhancing the customer experience.
- Train staff on fraud detection: Educating employees about the various types of return fraud and providing them with tools and techniques to identify suspicious transactions can be instrumental in preventing fraudulent returns. Appriss Retail’s Secure Coach module identifies associates in need of supportive training and provides the store or call center manager with the metrics and tools to track training sessions and results. This provides a single solution to reduce losses related to theft, fraud, and associate error.
- Monitor high-risk items and customers: Identifying high-risk products and transactions indicative of return fraud can enable retailers to implement additional security measures, such as extra verification steps or limited return options.
- Employ external resources: Collaborating with third-party organizations that specialize in return fraud prevention, such as Appriss Retail, can provide access to advanced technologies, industry expertise, and data intelligence to enhance fraud detection and prevention efforts.
Tackle retail return fraud successfully
Retail return fraud continues to pose a significant challenge, impacting profitability and overall operations.
By understanding the different types of return fraud and implementing proactive prevention strategies, retailers can mitigate the risks associated with fraudulent returns. The combination of clear policies, employee training, advanced technologies, and collaboration with external resources can empower retailers to safeguard their business interests and provide a secure shopping experience for their customers.
Remember, preventing return fraud is an ongoing effort that requires continuous monitoring, analysis, and adaptation to evolving tactics. By laying the groundwork, staying vigilant and proactive, retailers can combat return fraud effectively.
Katie Schimmelpfennig, Digital Marketing Specialist, Appriss Retail
Katie combines her talents of digital design and content writing to tell the story of how Appriss Retail's solutions are helping retailers across the globe. She has experience in public relations and journalism and graduated Magna Cum Laude with a B.S. in Mass Communications, Journalism from Trevecca Nazarene University.