Return fraud increased by an astounding 35 per cent in 2019, costing both online and bricks and mortar retailers an estimated $27 billion, according to a recent report by APPRISS Retail.
Their latest study indicates return fraud is just part of a burgeoning return trend, equating to $309 billion in lost sales for the retail sector.
Here’s an insight into the APPRISS findings and how retailers can stem the loss.
An increasing trend
According to APRISS Retail’s Consumer Returns in the Retail Industry 2019 report, 8.1 per cent of all sales were returned last year, equating to $309 billion in lost sales.
Of that, 8.8 per cent were considered fraudulent, representing a loss of $27 billion.
For online retailers that percentage was even higher, with $427 billion in online sales resulting in $41 billion worth of returns.
Within online retail, the highest potential for return fraud occurred during buy online return instore (BORIS) transactions. Of the $20 billion worth of BORIS returns in 2019, $1.6 billion were found to be fraudulent.
Last year APPRISS also recognised this trend, explaining: “The increase in buy-online-return-in-store (BORIS) returns is driving new demands—such as offering ‘frictionless’ returns. The ability to offer more flexible and lenient returns, while still mitigating the risk of fraud and abuse, is ever more critical.”
Meanwhile, a further $17 billion worth of returns was made to non-store locations like warehouses, call centers and manufacturers, and of these $0.4 billion were fraudulent.
In addition, non-receipted returns resulted in the highest risk, with 21.1 per cent of all non-receipted returns considered fraudulent.
A receipt didn’t guarantee authenticity, however. The report further found 7.2 per cent of all receipted returns were also fraudulent and overall the sheer volume meant they came at a higher cost.
“Receipted returns are a hidden risk,” the report stated.
“Applying data from the 2018 survey, receipted return fraud accounts for $19 billion (more than seven per cent of all receipted returns) compared to $7.6 billion for non-receipted. This risk comes from behaviors like shoplifting, double-dipping, employee collusion, tender switching, wardrobing/renting, and more.”
The return challenge
APPRISS Retail goes on to note returns present both risk and reward for retailers.
On one hand returns are part of the new customer experience where the process can be used to convert shoppers into loyal advocates, cross sell or upsell.
“Returns are good,” the report states. “Your best shoppers often make the most returns.”
Meanwhile, they note the point-of-return is a real customer service “moment of truth”, in-store returns are a chance to meet and convert an online buyer, they provide an opportunity to cross-sell or up-sell a known customer, and how they are handled impacts customer perceptions.
On the flipside, however the push to offer a frictionless experience needs to be weighed against a very costly risk.
Strategies to reduce return fraud
Due to the fact shoplifting and return fraud are closely linked, combatting the trend involves limiting the potential for shoplifting in the first place and then implementing clear store policy when it comes to managing returns.
Anti-theft strategies include:
- Protecting merchandise with electronic article surveillance including security labelsand security tags
- Monitoring the store using loss prevention professionals and/or CCTV
- Training staff in customer service and the signs of shoplifting
- Good store layout, including adequate lighting to reduce hidden or out of sight areas
- Monitoring potential theft areas like the fitting room
Meanwhile, retailers also need to be clear in their return policy and vigilant when refunding items for gift cards or cash. Importantly staff should also be educated in these policies, and return numbers and instances should be regularly reviewed.