While return fraud might often be put on the back burner behind more traditional or hawkish forms of theft such as shoplifting or organized retail crime, it can slowly bleed out profits for retailers. As online shopping continues to become more and more popular, return rates are growing because customers aren’t trying out items or seeing them in-person before making a purchase decision. Online sales typically double the number of items returned. What this means for retailers is that having a convenient, yet secure, return framework in place is going to become increasingly important to driving profit.
Over 70% of Loss Prevention (LP) executives indicate that return fraud is an important issue for their companies.-Loss Prevention Research Council
Return Fraud is on the Rise
How big is the return fraud problem? In addition to the costs associated with processing returns (such as transportation, storage and order processing), there is potential for increased losses due to abuse of the returns system. According to Appriss and the National Retail Federation, return fraud is a growing problem, costing U.S. retailers an estimated $27 billion a year. And the largest risk for online returns is in-store. BORIS (buy-online-return-in-store) return fraud for instance amounts to $1.6 billion compared to $0.4 billion for non-store locations.
Methods of Return Fraud
Like most types of theft, the specifics of return fraud often vary. Sometimes people will buy items at a discount and then return them elsewhere for full price. Sometimes the items returned have been used - this is known as ‘’free renting’’ or ‘’wardrobing’’. In other cases, thieves will swap the price tags on an item with a more expensive one before making a return. There are also shoplifters who are trying to return merchandise they’ve stolen. This is a common tactic for organized retail crime groups that will steal from one store and return items at another location at retailers that have generous return policies.
One of the most difficult aspects of fighting return fraud is discerning between customers making a genuine return versus people abusing the return system. This can be difficult in a market that is becoming more and more focused on frequent and hassle-free returns. Brands like Warby Parker will send you 5 pairs of glasses to try and have you just return the ones you don’t want for free. Amazon has made one click returns with easy pickup and drop off standard practice.
‘No questions asked’ returns are now the norm for most retailers. Some online disruptors like Casper mattresses are offering 100 day free-return periods. Consumers expect a frictionless return process: according to a consumer sentiment survey from Signifyd nearly 83% of respondents said they would be more likely to buy again from a retailer or brand after having a positive return experience with that retailer or brand. Conversely, 75% said they’d be less likely to buy again after a bad return experience.
This normalization of frequent returns is great for customer satisfaction but can create a perfect situation for thieves to exploit. How can we weed out the bad actors, but keep the customer convenience? The answer lies in using the historical tracking data for an item, powered by RFID technology.
Only 30% of retailers currently utilize automation to detect fraudulent returners."-Loss Prevention Research Council
How RFID Can Help
Accepting returns can be tricky if the customer doesn’t have the proper proof of purchase. By placing the burden of proof on the RFID label attached to the item, rather than a receipt or the customer themselves, RFID labels create a secure and convenient alternative to traditional return methods. With unique RFID code for each specific item, rather than just each type of item you can now tell if a particular item that’s being returned has been stolen from another store or if that item was originally sold at a discount.
Integrating your point-of-sale data with RFID data means you can see the whole history of an item: it was shipped to store, replenished to the sales floor and eventually sold to a customer. Or, in case of returns of stolen merchandise, never sold in the first place. Thus, with the help of RFID technology you can make return fraud a thing of the past.
"Half of all retailers said they considered return fraud to be one of their highest-level priorities overall.-Loss Prevention Research Council
Acting on Fraudulent Returns
The shift from 'no questions asked' to 'we ask questions when we see a suspicious return event' has an impact on the way store associates handle returns. If a fraudulent return happens, retailers have two paths for moving forward: acting on the event when it happens or letting these incidents pass by and looking at the broader picture to find patterns.
The best course of action has both a short- and long-term tactics in it. Spotting suspicious return events needs to be dealt with accordingly, which means staff need to be trained properly and the appropriate procedures need to be in place. Examining the data for these fraudulent returns would lead to counter measures in the long term, as you will know which items are likely to be falsely returned.