In a recent collaboration, we collaborated with PYMNTS to survey 100 senior decision-makers at large e-commerce businesses. The majority (89%) of firms have reported suffering from at least one type of policy abuse, and 66% of these retailers reported seeing an increase in returns abuse. The bottom line shows that U.S. retailers are losing 2.2% of revenue to policy abuse each year.
Do not be fooled, though. That seemingly small 2.2% costs retailers $89 billion annually.
As e-commerce has grown over the past years, so has the abuse of retailer policies. Returns abuse presents a particular challenge for businesses because it is perpetrated both by fraudsters and by known customers. To help prevent returns abuse, we first need to understand the various flavors of this particular type of fraud. Let’s dive into the common tactics businesses should look out for.
Unintentional Returns Abuse
Before diving into the tactics used by fraudsters committing returns abuse, it is essential to know that not all ineligible returns are malicious in nature.
Sometimes customers return ineligible items completely by accident. An honest customer mistake is normally due to an unclear return policy. Without an easy-to-digest return policy, ineligible items will be returned unintentionally. So the first step to preventing returns abuse is to have a clear and concise return policy easily accessible for customers.
Types of Malicious Returns Abuse
What about intentional returns abuse? Here are some of the most common scenarios. Remember: all of the following tactics are equally detrimental to a business’s bottom line, and abuse can come from many directions.
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Price tag switching
Price tag switching occurs when a customer switches the price tag on an expensive item with one from a cheaper item, buys the item at a lower cost, and returns the item without a receipt. This way, they end up pocketing the difference.
How to prevent it: Price tags that aren’t easily removed (no stickers or interchangeable parts) prevent price tag switching. Train staff to double-check that the item on the screen matches what is being purchased when it’s scanned.
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Returning shoplifted items
Returning shoplifted items is a fairly self-explanatory tactic. The perpetrator steals items in hopes of returning them at a later date for a refund on an item they paid nothing for.
How to prevent it: Simply require receipts for any returns.
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Receipt fraud
If ‘price-tag switching’ and ‘returning shoplifted items’ had a child, this would be it.
To avoid the problem of not having a receipt on a shoplifted item, the perpetrator attempts to use an invalid receipt. Much like putting a fake price tag on the item, this could be fabricated, stolen, or even an older receipt.
How to prevent it: SKUs on receipts can help with preventing receipt fraud. If the SKU doesn’t match the item, then the return should not be allowed. If SKUs aren’t available, you can also train employees to look for signs of a fabricated or invalid receipt; although this won’t entirely eliminate the problem.
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Shoplisting
The perpetrator obtains a receipt and uses it as a “shopping list”. By obtaining the items listed on a perfectly valid receipt, they can then attempt to return brand new items on the receipt for a refund.
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How to prevent it: Implementing a time limit in your return policy will stop fraudsters from using older receipts to return new items.
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Wardrobing
A common tactic used by customers in the fashion space, wardrobing is when a customer purchases an item with the intention of using it a few times before returning it and passing it off as brand new.
Think of someone purchasing an outfit specifically for an event. They have no use for the outfit beyond that event, so it ends up being returned despite being used. Wardrobing is often considered harmless by those who commit it, but it’s still fraud nonetheless.
How to prevent it: Closely examining items when they’re returned for any signs of use can help here. Also, when talking about clothing, place tags in visible locations that would make it difficult to wear the item without showing off the tag.
Further Considerations in Returns Abuse
When it comes to returns abuse, there are many tactics that retailers and other businesses need to watch out for. However, this is not a one-size-fits-all scenario for the many different types of suspicious activity that can be committed. Referring back to our research, 53% of respondents cited ‘inability to act at scale’ as a significant challenge, while 32% noted ‘inability to block repeat abusers’ as a major issue.
In addition, 37% of businesses cited not automatically tracking the magnitude of abuse-related losses, meaning that regardless of policy adjustments made, they may not know whether their strategy is effective or not.
That’s why the most critical first step is to better understand the magnitude and forms of abuse you face. That typically requires partnership with a solution provider that can surface this data and help you adjust policies—either holistically or in real-time for specific buyer identities. Such a provider must also be able to help you identify repeat abusers and make decisions about what interactions to accept or block, all automated so that you can operate at scale.
As policy abuse continues to grow and evolve, the above strategies are important to protect your business and to protect your customers.
[To share your insights with us, please write to sghosh@martechseries.com]
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