Returns already have a significant impact on retailers’ bottom line. National Retail Federation (NRF) data reveals that for every $1 billion in sales, retailers incur an average of $145 million in merchandise returns. 

To make matters worse, returns fraud is also on the rise. Last year, 13.7% of retail returns were fraudulent, up from 10.4% in 2022, costing retailers $101.91 billion in 2023 alone. Criminals are continually implementing more creative ways to cheat traditional returns systems, making it harder for retailers to detect and prevent fraud.

Returns fraud is becoming more organized and sophisticated

A recent case involving PacSun highlights how returns fraud is becoming more creative, with one customer found guilty of returning approximately 250 orders worth $24,000, receiving refunds without sending back the merchandise. The customer instead sent in used or different merchandise, empty shoeboxes, or even packages that never arrived at the warehouse to claim the returns – based on advice from organized groups on messaging apps.

These apps are being used to guide users on how to navigate the returns process and trigger high-volume, high-cost fraud. Some of these platforms operate like businesses, promising easy money to their users.

According to the U.S. Attorney’s Office, one example is a scheme called «Simple Refunds.» The scheme organizer and his staff encouraged co-conspirators to purchase items from retailers and then impersonated the purchasers to secure refunds while allowing the original buyers to keep the merchandise for a cut of the return fees. One company in Western Washington alone lost $1.4 million to this fraudulent scheme.

As well as seeking guidance online, fraudsters are also employing creative methods to bypass automatic returns processes, such as replacing the weight of returned items.

In one instance, a 22-year-old was arrested for totaling nearly $370,000 in Amazon returns by ordering items and sending the parcels back with the exact weight in dirt. Without manual checks, the parcels would be weighed and processed automatically as the parcel displayed the correct weight. It wasn’t until one of the parcels was selected for a random search that the scam was…unearthed. 

How retailers can tackle rising returns fraud

Detecting and preventing returns fraud is a challenge for retailers. And as fraudsters become increasingly clever with their methods, retailers too must implement smarter policies and procedures.

But there is a balance retailers must strike to keep returns both cost-effective and customers happy. For example:

  • Implementing strategies like higher returns fees can help recover some lost costs and deter some fraudsters but can steer away your potential and loyal customers.
  • Limiting the number of returns customers make will prevent serial returners from abusing returns policies but will also punish loyal, high-spending customers with genuine higher return rates, decreasing overall lifetime value.
  • Applying manual checks to each return will ensure that refunds are only issued for the correct items – but is an incredibly time-consuming, labor-intensive and expensive process.

So how do retailers prevent returns fraud, while ensuring customer happiness and decreasing costs? The answer lies in a comprehensive, end-to-end returns solution that examines each aspect of the returns process.

Retailers need smarter returns processes, not necessarily tighter

End-to-end returns solutions offer a holistic approach to returns for retailers, using data and artificial intelligence (AI) to analyze customer behaviors and detect fraudulent activity.

By using information such as customer history, return frequency, and payment information, the smarter returns solutions can implement stricter guidelines or return fees when detecting suspicious behavior. With a complete view of each return, including what is due to be returned, by who, and why, end-to-end solutions also increase the speed and ease of manual parcel checks.

As packages arrive in the warehouse, staff will already have details of the contents and condition – allowing them to perform quick confirmation checks. Any parcels that are missing items or have replaced items with a similar weight are immediately flagged. Image verification can also be utilized here, as comparing images of returned items to original product images can help identify discrepancies and prevent the return of used or counterfeit merchandise.

Prevent fraud and increase profits with Blue Yonder

Blue Yonder offers a complete, end-to-end returns solution that can help retailers combat fraud through an intuitive customer journey that automatically enables the right decision with every return.

By leveraging advanced analytics, machine learning, and AI, our solution provides the tools to help detect and prevent fraudulent returns while maintaining a positive customer experience.

Learn more about how our returns solution can improve cost effectiveness, keep customers happy, and help you prevent returns fraud here.