Return fraud has become a significant problem in the fashion and retail industries, creating financial challenges and operational complexity for businesses. This form of fraud involves deceptive behavior, where consumers take advantage of the return policy for personal gain, usually by purchasing an item with the intention of returning it after temporary use.
The fashion industry is particularly vulnerable to these programs due to its high rates of return due to size issues and changing preferences. As customers seek flexibility in the returns process, retailers must strike a delicate balance between meeting consumer expectations and implementing effective measures to curb fraudulent activity, ensuring the sustainability of their operations and bottom line. Alexandra Romantseva, Rebound's returns expert, explains the impact this has had on the industry.
When discussing return fraud, it's important to clarify what we actually mean and understand the different types of fraud that can occur. The main types are:
Wardrobe: It is common to wear a piece of clothing to a party or event and return it for a refund.
Unethical Rental: Buying something, using it for a specific purpose, and then returning it, such as using a big TV ** important game.
Counterfeits: Buying expensive things and sending them back. This is especially popular in handbags.
False fault: Falsely claiming that an item is damaged and sending it back for a refund after the return window has expired.
Wrong item: Send back a random item, such as a brick instead of a shoe, and want to process a refund without checking the item.
While some of these are clearly malicious, a common misconception about return fraud is exacerbating a major problem in the fashion industry. While 84% of consumers claim they have not and will not intentionally commit fraud, nearly a third (31%) believe that activities such as using an item and then returning it as if it had not been used are not fraud.
This gap in understanding leads to behaviors such as "wardrobes". Surprisingly, this type of fraud is so common that many shoppers buy clothes with this clear intent. But these seemingly innocuous actions hurt retailers.
The rise of frauds such as wardrobes may stem from the lack of a wide range of affordable rental options. While 33% of consumers say there is a lack of proper rent, another 17% say the cost of rent is a barrier.
How can retailers effectively distinguish between legitimate and fraudulent returns?
The most effective way to distinguish between legitimate and fraudulent returns is to use data. By implementing an end-to-end returns management system, retailers can gain valuable insight and visibility throughout the returns process. This allows them to closely monitor consumer behavior, the reason for returns, and the circumstances of returns, and then develop an effective anti-fraud strategy. Analyzing historical returns data will make it easier for retailers to identify red flags and monitor suspicious patterns.
By partnering with services such as Rebound, adopting a "smart returns" system ensures that refunds are based on verified information, as the contents of each returned package are verified before triggering a refund. This approach prevents potential erroneous chargebacks, such as returning the wrong item, deterring and preventing fraud and ensuring a more secure and accurate refund process.
In addition to this data-driven returns process, retailers should also incorporate item handling into their returns strategy. Each returned package must be carefully inspected at the warehouse to ensure that the items inside are correct and in a condition that is acceptable for a refund. Fast processing enables legitimate customers to receive refunds quickly, improving the customer experience while reducing the risk of successful fraudulent returns, saving retailers unnecessary costs.
What techniques or strategies can be implemented first to prevent return fraud?
Addressing the challenge of consumers who need short-term goods but don't buy them directly can help reduce the number of people "in the closet." The introduction of rental products in different product categories, coupled with targeted marketing to encourage adoption, can significantly reduce the number of people who commit this type of return fraud.
Unfortunately, it's not easy to prevent consumers from sending the wrong goods and counterfeits, which is why it's so important to take the right measures at the processing stage to prevent such returns from being refunded.
In the world of fashion, are there specific product categories that are more susceptible to return fraud? If yes, why?
Return rates vary widely across categories in the fashion industry. For example, about 10 to 20 percent of homewear items are returned. For everyday items such as t-shirts and jeans, this rises to around 40%. But for occasion attire, such as party dresses or suits, the return rate can be as high as 80%.
In simple terms, it mostly depends on cost and suitability. If you spend £1,000 on a new suit and it doesn't quite fit, you'll most likely return it. However, for a pair of 20-pound sweatpants, they're all more likely to fit and, if they don't, they're more likely to stay.
The concept of wardrobe is most common in occasion clothing. One-off events like weddings, Christmas parties, bachelorette parties, proms, and award ceremonies can all add to the possibilities in your wardrobe.
How retailers can strike a balance between providing customer-friendly return policies and preventing return fraud.
To balance customer-friendly returns policies with fraud prevention, retailers need to be able to distinguish between those who simply make a purchase and engage more with the brand or store and those who take advantage of the system. Data shows that about 20% of shoppers generate 80% of refunds, but not all regulars negatively impact the brand; This 20% of the population may also include their most loyal customers.
Retailers should take a nuanced approach and avoid simplistic bans on repeat returners. Conversely, offering special services to subscription-based customers and offering a limited number of free returns each year can effectively mitigate the impact of frequent returns, taking into account the lifetime value of individual customers. This approach suggests a better understanding of shoppers' return behavior.
Is the increase in returns fraud a sign of a difficult economic time for consumers?
Rebound data from last year found that while retail shopping was down 115%, but the return is 26% higher. The surge in returns seems to indicate that consumers are under increasing financial pressure, some of whom need to recoup their money. Individuals in distress may even abuse the return policy out of desperation. The cost-of-living crisis has further led to an increase in "first-party fraud", with CIFAS reporting that the number of people admitting to such crimes has increased from one in twelve to one in eight in the past two years.
It's important for retailers to recognize these motivations while still taking steps to prevent return fraud.