Product returns are an expensive, and growing, problem for fashion retailers. According to a report by Appriss Retail and the National Retail Federation (NRF), total returns for the retail industry amounted to $743 billion in merchandise in 2023, creating huge reverse logistics costs. For fashion retailers, returns create an urgent challenge as they struggle to get trendy merchandise back on the shelf, or in the online fulfillment center, as quickly as possible. When returns arrive, they need to be scanned, verified and processed right away. Speed is of the essence.

But what if the warehouse receives an empty box instead of the dress associates were expecting? Or what if the dress has clearly been worn — part of a growing trend called wardrobing that’s a special risk for fashion retailers? That’s an even bigger problem.

Of the $743 billion worth of returned merchandise in 2023, 13% of those returns were fraudulent — representing $101 billion in value. Fashion retailers are not only investing heavily in return logistics, but losing their merchandise as a result of fraud. As leading fashion retailers like Zara face increasing competition from low-cost retailers including Shein and Temu, every lost sale, and every trendy dress, counts.

Shipping back empty boxes, or used apparel, is only the beginning. More than three-quarters (76%) of shoppers embellish their return reasons to get a refund when they don’t deserve one. Consumers take new products off the rack, go to a cash register and present them as returns. Other tactics used by fraudulent returners include fake payment methods, gift card fraud and counterfeit receipts.

How can these criminals get away with these practices? As mentioned earlier, fashion retailers are pressed for time — and they also want to keep shoppers happy in today’s hypercompetitive environment. Since research has shown that 73% of shoppers choose a retailer based on the returns experience, fashion retailers often give consumers the benefit of the doubt when it comes to returns without a receipt, apparel that seems to be worn and other issues.

The biggest challenge to combatting returns fraud is that, too often, fashion retailers are relying on human judgement, vague return policies, and on-the-fly interpretations of those policies. Their traditional manual-based processes are inadequate for detecting misuse, as well as distinguishing simple shopper mistakes from intentional fraud.

If fashion retailers tighten their returns policies, charge returns fees or limit the number of returns, they risk offending loyal customers who have a high lifetime value. Retailers must maintain a delicate balance, while still flagging and addressing genuine fraud.

As fashion retailers struggle with product seasonality, rising logistics costs, labor shortages and other pressing issues, returns fraud may be seen as a lower priority — but every day fraudulent returns cost fashion retailers millions of dollars.

Combatting fraud easily and cost-effectively via digitization

The great news is that fashion retailers can fight back against fraudulent returns quickly and affordably by embracing digital returns management. With advanced returns management capabilities from Blue Yonder, fashion retailers can create a disciplined, automated process that identifies returns fraud, minimizes its impacts and discourages repeat offenders.

How does it work? By digitizing the end-to-end returns process, fashion retailers can replace human judgement and a one-off, shopper-by-shopper approach with the power of artificial intelligence (AI), data science and advanced analytics. It may be hard for store associates or warehouse employees to distinguish an honest, high-spending customer from a serial, fraudulent returner — but it’s easy for AI.

Blue Yonder digital solutions intelligently use data such as customer history, behavior and returns frequency to detect suspicious activities, and then help personalize the returns experience based on that data. For example, retailers can implement shorter returns windows for serial returners, or faster refunds for loyal shoppers.

Retailers are provided with an informed perspective of each return — including the specific item, the customer details and the return reasons. This perspective increases the speed and ease of performing manual parcel checks in the warehouse. Employees will already know what to expect in terms of package contents and item condition, and they can quickly do a confirmation check.

Any parcels that are missing items, contain damaged items, or have replaced the returned items with some other material are immediately flagged. Images can be captured to confirm the fraud by comparing the returned items to original product images. Even if retailers choose not to take action against criminals, Blue Yonder flags them so they can’t easily repeat their fraudulent behaviors.

An intelligent, targeted approach to returns fraud

While fashion retailers like Zara, ASOS and H&M are tightening their returns policies to combat fraud, the drawback is they may be negatively impacting well-intentioned, high-spending customers who will simply shop elsewhere.

By leveraging advanced AI, analytics and data science, Blue Yonder enables a more intelligent approach that helps detect and prevent fraudulent returns at the earliest opportunity — while maintaining a positive customer experience for other shoppers. Returns policies can even be customized for each individual shopper, depending on their history and their statistical risk for fraud.

More than half (54%) of retail executives have called fraudulent returns their greatest challenge. It’s clear that fashion retailers need to take action to fight back against criminals’ increasingly sophisticated tactics.

At Blue Yonder, we think the clear approach is to employ equally sophisticated returns management solutions and processes. Why not talk to us about how fraud is uniquely impacting your own business? We can explore how our digital solutions equip you for victory in the battle against fashion returns fraud.