Deadlines loom for consumers who need to send back unwanted holiday gifts.
Many retailers extend return windows for purchases made in November and December through the tip of January. But in lots of other parts of the return process, firms have grow to be less lenient.
As more consumers shop online and send back more of those orders, retailers have moved to crack down on fraud. It has grow to be their top concern within the return process, industry experts said.
“Fraud is No. 1, and it is not even near No. 2,” said Vijay Ramachandran, vice chairman of go-to-market enablement and experience at shipping and mailing firm Pitney Bowes.
Retailers expect 16.5%, or $24.5 billion value, of holiday returns to be fraudulent this 12 months, based on a survey by Appriss Retail and the National Retail Federation. That is higher than a median of 13.7% estimated for all of 2023.
Source: Appriss Retail/National Retail Federation
Processing a web based return is already a costly proposition: It averages 21% of an order’s value, based on a Pitney Bowes survey of 168 retailers. Half the respondent firms paid greater than 21%.
The associated fee of processing a return is increasing not only as a result of higher shipping and processing costs, but in addition due to rising fraud, industry experts said.
“In cases where fraud is on the rise, like this 12 months, what we have seen in the information, retailers are forced to, at minimum, change their policies barely to accommodate for that potential fraud and abuse,” based on Michael Osborne, CEO of Appriss Retail, which helps firms manage theft and fraud. “It does increase their costs and essentially erode their margin.”
Saks CEO Marc Metrick said on the NRF Big Show in mid-January that while the retailer has long received legitimate complaints from customers about missing items, fraudulent “merchandise not received” complaints to the corporate have greater than doubled over the past several years.
That is only one fraudulent return tactic.
Shipping back an empty box or a unique item than was received, such as a box of bricks as a substitute of a television, is essentially the most common type of return fraud, based on Pitney Bowes’ Ramachandran. In other cases, fraudsters could return stolen goods. In one other example, they might also dig through trash to search out a receipt, then go into that store, find that product and take it to the return desk.
“There are examples of price arbitrage where someone will buy a product on sale or promotion, after which return it for full price so as to get the delta of that profit back to them, principally stealing those extra dollars,” Osborne of Appriss Retail said.
“Credit laundering, too, where they’re taking things like gift cards or store credit and using that to purchase a product, then returning it and putting that a reimbursement onto a unique card, allowing them to take the cash from potentially a stolen or fraudulently obtained gift card or credit,” he added.
Appriss Retail gave CNBC an example of 1 one who netted upward of $224,000 by fraudulently returning greater than 1,000 items to 215 stores across multiple states, using a wide range of return tactics.
Source: Appriss Retail/National Retail Federation
Return abuse is more common
There’s also less egregious behavior, often considered return abuse fairly than fraud. It includes “bracketing” or “wardrobing.”
“Bracketing” is where a consumer buys a couple of size or color with the intent of returning whichever doesn’t work for them. While not fraud, it still puts a return expense on the retailer. “Wardrobing,” when shoppers buy an item, use it after which return it, is considered a much bigger issue.
Greater than half, or 56%, of consumers confess to “wardrobing,” based on a survey from fraud prevention firm Forter. One in 4 consumers said they bought an item in the course of the 2023 holiday season with the intent to return it after use.
Forter Head of Risk Doriel Abrahams said premeditated, intentional returns after use are especially problematic.
Just below half, or 47%, of those that planned to “wardrobe” in the course of the holiday season were between the ages of 18 and 34, based on Forter. “Wardrobing” happens with numerous products, not only clothing.
“I actually have heard of individuals, each time they move an apartment, they buy tools, drills, whatever, put up the shelves and the things they need, after which just send it back,” Abrahams said.
How retailers are combating return fraud
Elevators inside an Ikea store in Doral, Miami.
Jeff Greenberg | Universal Images Group | Getty Images
Bad actors that commit return fraud are hurting honest shoppers as retailers make their policies stricter to stop abuses, those that track the tactics said.
“It’s really putting a damper on your individual experience, because straight away, I take a look at it just like the Plexiglas at the pharmacy. We’re having to do a version of that on our website, we’re adding friction to the client experience, to even the great actors” Saks’ Metrick said. “That is an issue for us, and we will should fix it.”
Return fraud has caused several retailers to tighten policies for all consumers. Some even use artificial intelligence and other technology to personalize their return policies, which could vary for every individual.
“Certain retailers offer the power so that you can have different return windows based in your known history with that retailer, essentially corresponding to a loyalty program status level,” said Osborne. He said some firms such as Amazon have adopted that strategy, and “that is where other retailers must go.”
Amazon did circuitously say whether it’s seeing more return fraud. Company spokesperson Kristina Pressentin said, “Amazon continues to make progress in identifying and stopping fraud before it happens” and that it “uses advanced machine learning models to proactively detect and forestall fraud, as well as employs specialized teams dedicated to detecting, investigating and stopping fraud.”
Corporations have tried to maintain consumers pleased in an increasingly competitive retail environment by offering lenient return policies. Nearly three-fourths, or 73%, of shoppers select a retailer based on the return experience and 58% need a smooth, no-questions-asked return experience across channels, based on a survey by Appriss Retail and Incisiv.
But firms should attempt to strike a fragile balance between appeasing those customers and attempting to lower return costs and incidences of fraud and abuse.
“It is not a coincidence, that one vivid day, eight months ago, almost every company began to charge for shipping returns, or began to have more restrictive return [policies],” Forter’s Abrahams said. “The cash talks. At the tip of the day, in the event you’re seeing that you just’re beginning to pay an excessive amount of for restocking, or validating the items which can be being returned, or shipping costs for returns, then you definately’re going to should hold those costs to your clients.”
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