The Growing Challenge of Fraudulent Returns: A Concern for Retailer

Introduction:

Retailers are facing an escalating problem as the rate of returns increases, with some companies discovering unexpected surprises when processing returned items. This issue, identified by logistics experts, is particularly prevalent during the holiday season, posing challenges for both online and brick-and-mortar stores.

The Rising Tide of Fraudulent Returns:

As the overall rate of returns surges, retailers are encountering an influx of fraudulent returns. Some companies handling returned televisions are opening boxes to find them filled with bricks, while others dealing with luxury goods are discovering counterfeit items submitted by customers seeking refunds. The National Retail Federation estimates that over $100 billion worth of merchandise was fraudulently returned in the U.S. in 2023, representing 13.7% of overall returns.

Holiday Season Challenges:

During the holiday season, retailers anticipate that approximately 17% of returns, valued at $148 billion, will be fraudulent. The surge in returns is attributed to policies such as free online returns, introduced to attract customers amidst the rise of e-commerce during the pandemic. These policies have led to an increase in returned merchandise, as consumers order multiple sizes and colors, returning what they don't want.

Fraud Tactics:

Fraudsters are capitalizing on the leniency of return policies, exploiting loopholes to secure refunds. Some criminals are sending back boxes filled with bricks instead of the purchased item, while others attach a higher-priced product's tag to a lower-priced item. Additionally, counterfeit goods are being shipped back to luxury retailers in the hope of obtaining a refund before the fake item is identified.

Challenges for Retailers:

Returned items are typically processed in warehouses, where the evaluation of an item's condition may be delayed. The weeks following the holiday season witness a surge in fraudulent returns, taking advantage of busy stores and warehouses. Retailers are grappling with increased shrink, encompassing theft, with organized retail-crime rings targeting stores such as Target, Home Depot, Macy’s, and Dick’s Sporting Goods.

Combatting Fraudulent Returns:

To address the issue, retailers are exploring strategies to minimize fraudulent returns. Encouraging customers to bring returns to physical stores allows immediate examination, reducing the likelihood of fraudulent claims. In-store returns appear to result in significantly lower fraud rates compared to mail-in returns. Some returns-service providers are adopting practices like examining merchandise left on doorsteps without packaging, aiming to cut down on attempts to pass off used goods as new for a refund.

Conclusion:

The growing challenge of fraudulent returns poses a significant concern for retailers, impacting their bottom line and operational efficiency. As retailers grapple with this issue, finding effective strategies to minimize fraudulent returns becomes crucial to maintaining customer trust and sustaining a healthy business environment.