Retailers are facing an unexpected challenge—returns fraud is on the rise.
With consumers increasingly taking advantage of lenient return policies, businesses are finding themselves losing more than just products. While Aussie retailers are seeing fewer incidents than their global counterparts, the financial impact is still enough to leave them scrambling for solutions.
A report from Loop, a return management platform, reveals that 60% of Australian retailers have fallen victim to returns fraud or policy abuse in 2023. Despite fewer incidents than the global average, the financial toll is still noteworthy, with retailers losing USD $10.40 for every $100 worth of returned goods. This loss is compounded by the decline in consumer spending on discretionary products. Prominent Australian retailers like Dion Lee and Booktopia have been notably affected, with Mosaic Brands also feeling the strain. The most common types of fraud reported were disputes over product quality, which 66% of retailers experienced. Other fraud tactics include ‘wardrobing’ (where items are worn before being returned) and the return of items with the intent to keep them, both affecting 47% of the retailers surveyed.
A key driver of this fraud surge is the current economic climate, with 43% of retailers attributing it to financial hardship pushing consumers to exploit return policies. Other factors, such as dissatisfaction with product quality (41%) and temporary usage of items (35%), also contribute. Retailers are also grappling with high operational costs (reported by 42% of those surveyed) and supply chain disruptions (39%). John-David Klausner, Senior Vice President of Business Development, Loop says: “Returns fraud and abuse have become a particularly huge challenge – potentially exacerbated by increasing cost-of-living pressures. However, customer expectations for exceptional customer experiences remain high. Brands are using all the tools available in their returns policies to dissuade the worst offenders among their customer base while keeping their best customers happy.”
Top tactics against returns abuse
Australian retailers are taking a tough stance against returns abuse. In an effort to curb this growing problem, nearly half (46%) of retailers are implementing permanent bans for repeat offenders. Additionally, a significant number (40%) are raising awareness about the environmental impact of excessive returns, hoping to deter customers from unnecessary purchases and returns. Australian retailers are disproportionately affected by quality disputes, with two-thirds of companies experiencing this type of fraud or policy abuse in the past year, compared to the global average of 53%. Wardrobing and returning items with the intention of keeping them are also significant issues, affecting 47% of Australian retailers.
Despite the clear recognition of the problem, with 65% of Australian retailers acknowledging the seriousness of the rising returns fraud and policy abuse, only slightly more than half (53%) believe their company’s detection and prevention measures are highly effective. This discrepancy highlights a gap between awareness of the issue and the implementation of robust countermeasures. The challenge of balancing customer satisfaction with fraud prevention is particularly acute in Australia. A vast majority of retailers (74%) prioritize customer experience over fraud and abuse prevention. However, over half (51%) identify maintaining a positive customer experience as the primary obstacle when addressing returns fraud and policy abuse. This indicates a complex interplay between customer expectations and the need to protect the bottom line.
A report from Loop offers actionable insights for retailers and details the steps they can take to better cope with the issue of returns fraud and policy abuse. These include examining consumer behaviour as a primary defence mechanism, improving education for consumers about what constitutes fraud, establishing clear consequences for returns fraud versus policy abuse and reviewing all returns data. This includes item grade and disposition data from the returns warehouse, which can make it easier to spot deceitful shoppers. “Our latest industry data report reveals a notable rise in returns fraud and policy abuse over the past year, highlighting the importance of understanding consumer behaviour not just in purchasing, but also in returns,” said Loop founder and former CEO Jonathan Poma.
“The challenge is enormous: for every $100 in returned merchandise, retailers lose $10.40 to returns fraud. Retailers are implementing sweeping changes to address this drain on their bottom line, and our insights show that a data-driven, customised approach is key to reducing fraud while delighting genuine customers. Leveraging tools like advanced fraud detection models and return fees can provide merchants with the resources they need to not only mitigate these issues, but also improve their return processes as a whole.”
Read more tips from Loop here.
Keep up to date with our stories on LinkedIn, Twitter, Facebook and Instagram.
Diego Wiers
Read More