From wardrobing to counterfeit product switching, returns abuse is on the rise. Fortunately, returns analytics can help reduce returns abuse and protect net revenue.
Before the rise of e-commerce, returns were fairly straightforward. Shoppers would purchase a product from a brick-and-mortar store and bring the item back if there was an issue. Yes, there were instances of wardrobing and disputes over policies regarding receipts and return windows. Compared to today, however, that was a walk in the park.
Combine the anonymity of online shopping with omnichannel sales and supply chains, and the opportunities for returns abuse have multiplied exponentially. While there are valid customer claims of non-delivery or product damage, returns abuse is very real.
What complicates matters further is that it’s not just criminal masterminds engaging in this type of abuse. Forbes put it best when it said, “Generally speaking, many people behave within the constraints that are available to them. They push where they’re able to push, and a subset will seek to take advantage, either unethically or illegally.”
So, where does that leave businesses? While stricter return policies may reduce abuse, they could deter new and existing customers. Conversely, accepting the financial loss of this abuse will quickly eat into revenue.
The truth is that there’s no one solution that will work for every business. Fortunately, returns analytics can help you identify returns abuse and develop solutions that will minimize these instances while protecting net revenue.
What is Returns Abuse?
In the most general sense, returns abuse (or refund abuse) is when customers take advantage of a return policy to such an extent that it becomes unprofitable. The difficulty with reducing returns abuse is that, while some instances are more malicious than others, not every instance of returns abuse qualifies as fraud.
For example, returns abuse that involves wardrobing can be complicated. Also known as “wear and return,” wardrobing is when customers purchase products with the intention of using them for only a short while. When they return the product, they often misrepresent the product return reasons in order to get a full refund. Retail Touchpoints even says, “The problem has grown so prevalent that companies like ASOS are tracking social media accounts to mitigate wardrobing fraud and ban serial returners.”
Other forms of returns abuse that are more clearly fraudulent include those involving contactless delivery and counterfeit product switching. The former is when customers falsely claim they never received products in order to get a refund. Similarly, counterfeit product switching involves customers fraudulently returning knock-off merchandise. For example, just a few years ago, Apple believed a customer was returning an iPhone. In reality, it was a potato of a similar weight.
While abuse like tag switching is generally more prevalent in brick-and-mortar stores, every business needs to be aware of the different ways returns abuse can occur.
The Financial Impact of Returns Abuse
Recently, CNBC spoke about return fraud, saying, “This type of ‘friendly fraud’ might feel harmless and seem like a small drop in the bucket for powerful corporations. But taken together with more nefarious forms of fraud, it’s costing retailers more than $100 billion per year.”
The Riskified study that CNBC referenced surveyed over 300 companies with over $500 million in total annual revenue. Of those companies, 90% admitted that offering generous refunds, promotions, and return policies helped drive sales and increase loyalty. However, “a majority of respondents (55%) say their costs from INR (item not received) abuse in 2022 were ‘very significant.’ This response suggests that this form of abuse has become more common, and more costly, compared to others in the current retail environment.”
Additionally, businesses often don’t have the capacity to assess these instances. Riskified explains that “Companies that ship products to consumers all over the world may not have visibility into who their last-mile delivery partners are, thus they can’t invalidate claims with any certainty.” This causes many to view returns abuse as a normal part of business.
However, this attitude opens the door to even greater financial risk. Professional fraudsters who engage in unauthorized reseller abuse can quickly siphon off a business's net profits. For example, “with a $30K weekly investment, professional fraudsters can generate more than $50K in weekly revenue — more than one million dollars a year.”
How Returns Analytics Can Help Reduce Returns Abuse
With returns abuse on the rise, accepting the financial losses that come with it is no longer an option. Fortunately, returns analytics can provide valuable customer behavior insights that not only identify returns abuse but also help develop solutions to minimize them altogether.
While attempting to gather the granular data needed to understand customer behavior can feel next to impossible, advanced returns management technology can gather this data for you. It can identify trends, outliers, and help businesses more clearly understand things such as:
- Customer behavior at the channel level
- Returns by region and/or country
- Impact of returns between new and loyal customers
- Customer lifetime value
Returns data can then be used to identify specific sales channels with high returns abuse, whether loyalty programs need to be revised, channel-specific issues that enable abuse, and more. For example, it’s possible that a design flaw on the business website, or even a glitch within your post-purchase platform, allows returns on final sale items even if transactions like that are prohibited in the return policy.
Returns analytics can even help discern between instances of wardrobing and bracketing. Customers who engage in the former have no intention of keeping their products. However, customers who bracket often do so simply to determine the correct size or product variation/color they wish to keep. Businesses can extract valuable insights from bracketing that can then be used to improve marketing and product assortment. So, distinguishing between behaviors like bracketing and wardrobing is vital.
Identify and Reduce Returns Abuse with the Returnalyze Intelligent Dashboard
The thought of trying to identify returns abuse can feel overwhelming, and actually developing solutions that minimize it may seem next to impossible. We’re here to tell you that it IS possible, and we’re willing to do all the hard work for you.
Not only does the Returnalyze Intelligent Dashboard give you access to the granular data needed to identify abuse, but a partnership with Returnalyze comes with step-by-step guidance and analysis from our data experts.
Returns abuse can be costly, but we’ll be with you at every step to help identify these transactions and develop data-driven solutions to minimize them.