Return Abuse: The Friendly Fraud that is Causing Merchandise Companies to Lose Millions

Ever faced the disappointment of satisfactory sales turning into adverse returns despite your decent efforts? Received a fake product as a return in place of your original product? Have customers purchased an item from you with the full intention of returning it after some time?

Answering “YES” to the above questions suggest that you have faced unwanted returns which fall into two categories:

  • Fraudulent– Fraudulent returns are made with the intention of making quick cash by returning stolen or lower priced goods to get the full retail price as a refund.
  • Abusive– These return frauds are committed to taking advantage of the return policies of the retailer. Wardrobing/renting, for instance, is an example of an abusive return wherein the customer uses the product and returns it within the stipulated time, with the tag intact.

A very prominent example is of return fraud/abuse is of Mr. Claude Alexander Allen Jr of the UnitedStates of America, the Assistant to PresidentGeorge W. Bush. Even at such a reputed position, he was arrested for repeatedly stealing from retail stores and engaging in return frauds! This case clearly suggests that no one can be trusted regarding such frauds.

Such returns are impacting both, the retail market and the e-commerce market as they are highly detrimental to sales, profit margin and stock maintenance. Moreover,it leads to additional costs in processing the return, restocking returned merchandise, re-evaluating its worth, or determining where, how, or even if it can be resold.

Understanding and being aware of the different types of fraudulent abusive returns can help the sellers create an appropriate strategy. Some problems of return fraud/abuse include-

  1. Wardrobing/ Renting: Purchasing products for short-term use with the intent to return the item, such as a dress for a special occasion, a video camera for graduations and weddings etc.
  2. Returningstolen merchandise: Shoplifting with the objective to return the item at full price.
  3. Price arbitrage: Purchasing differently priced but similar looking merchandise and returning the cheaper item in place of the expensive one.
  4. Price switching: Placing higher priced labels on products with the intention of returning the item(s) at a higher price than purchase.
  5. Switch fraud: Purchasing a working item, and returning a damaged or defective identical item that was already owned.
  6. Bricking: Purchasing a working electronic item, and deliberately damaging or stripping it of valuable components to render it unusable, then returning the item for profit.
  7. Employee fraud: Assistance from employees to return stolen goods for the full retail price.

Retailers can combat such return frauds and abuse by developing strategies that help in identification of any abuses or frauds relating to the product and framing return policies that are neither overly restrictive and/or inconsistently interpreted. A return fraud/abuse detection and remediation strategy has to be developed keeping in mind three main aspects which are-

  • Use of Technology

The technology requirements for a strong return management system may include automated solutions backed with AI (Artificial intelligence) that can detect unusual return behavior and help retailers and sellers determine whether a return is valid or not.

Sellers should supremely consider using unified platforms for providing consistent customer support, better customer understanding, educating them about the real value of the products and services and fulfilling their requirements proactively. Easing the task of customers can immensely trim the reasons for product returns. Examples of facilities to ease the consumer’s work- accessing digital documents, raising and tracking service requests, accessing self-service and troubleshooting videos, purchasing an extended warranty, accessories etc, on a single platform through the single-touch functionality.

Reduction in fraudulent and abusive returns by use of appropriate technology and support systems helps a retailer’s financial situation by lowering costs, preserving net sales, reducing shrink, while still delivering better service to their shoppers.

  • Customer return policy

Careful scrutiny of customer return policy reveals a lack of comprehensiveness to avoid return frauds/abuse.  A well-thought customer return policy can prevent fraudulent returns by plugging loopholes and at the same time provide convenient return process for genuine customers. The change should be brought gradually as a sudden change may turn a bit hostile for the existing genuine customers.

  • Return procedures and employee effectiveness

For getting the expected result from policies and technologies incorporated, employee effectiveness is primarily required. Employee effectiveness can be achieved by conducting background checks while hiring and training employees on returns-management procedures, as well as store’s return policies. Front-end employees can be trained to detect fraudsters, spot fake receipts, and even detect unusual return patterns.

Each of the parameters above has their own challenges in achieving the ideal level and require investment in terms of time and money. The optimal combination of the three will decide the effectiveness of a merchandiser’s return fraud prevention strategy.

By effectively managing these parameters, it is possible for the merchandisers to enhance their return fraud/ abuse prevention capabilities, thereby plugging the revenue leak resulting from such fraudulent returns.

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