Returns Abuse: A $24 Billion Problem

Consumers have come to expect flexible returns policies. In recent research, Forter found that a whopping 97 percent of consumers say that returns policies impact their likelihood to actually purchase with a retailer. This is especially true for consumers shopping for apparel and accessories; these shoppers frequently use in-store and online returns, and deem these options to be very important (55 percent).

Merchants need to deliver a frictionless, customer-friendly returns experience to meet consumer expectations today. However, this growing flexibility also makes returns policies a bigger target for abuse. Today, up to 20 percent of returns are categorized as abuse or fraudulent.

The Returns Abuse Problem

Returns abuse can take many forms. “Wardrobing,” where a consumer uses an item before returning it as new, comprises nearly a third (32 percent) of returns abuse. High return rates can also be a form of abuse — 30 percent of users buy items with the intention of returning some of them in order to qualify for free shipping. Returns fraud, in which fraudsters return a less valuable item in place of the original item, is also a significant form of returns abuse. All these types of abuse can be hard to detect and stop as sophisticated abusers will often set up new accounts and payment methods to hide their identities and avoid detection.

Returns abuse costs U.S. retailers over $24 billion each year. This stems from lost revenues as well as added operational overhead due to the cost of processing returns, shipping, and restocking inventory. The costs of returns abuse can prevent merchants from providing customer-friendly returns programs, ultimately providing a poor customer experience.

Solving Returns Abuse

The traditional method for identifying returns abuse is manual review of orders, leveraging large fraud teams and blacklists to try and prevent future abuse. Unfortunately, there are many problems with this method — it’s limited by manpower, training and the ability to scale, while also being inconsistent and inaccurate.

Other merchants use rules-based tools to flag or block abusive accounts. While certainly more scalable, these aren’t dynamic — they can be easily “outsmarted” and can’t proactively stop returns abusers. Inaccuracies in these tools can also stop legitimate customers from making purchases and harm the overall customer experience.

In lieu of detecting returns abuse, some merchants resort to restricting their returns programs and policies. Look no further than L.L.Bean, REI, and Costco changing their lifetime returns policies, for examples. However, with nearly 60 percent of consumers considering a merchant’s return policy when determining where to shop, these restrictions can negatively impact conversion and retention.

Keys to Success

In order for merchants to protect their business from returns abuse without damaging the customer experience, there are four key considerations they must keep in mind:

1. The right solution isn’t one-size-fits-all. Each merchant will tackle returns abuse differently — with different business policies, risk appetites, and customer experience standards — and a solution needs to be tailored for their unique business.
2. Accuracy is vital. Each error in distinguishing between abusive behavior and legitimate consumer activity is lost revenue, whether from fraud or damage to the customer relationship. In order to achieve optimum accuracy, merchants need access to a wide network of data that extends beyond their own business ecosystem to proactively identify abusers before they can impact their business.
3. Abusers can easily hide their identity. Therefore, returns abuse measures must be able to detect hidden connections between user accounts to accurately identify abusers.
4. Policies must be enforced in real time. Merchants need real-time decisions to enforce their business policies at any point of interaction and prevent abusers from hurting their bottom line.

Following these guidelines, retailers can prevent returns abuse, while also protecting profits and enhancing the customer experience.

Michael Reitblat is CEO of Forter, a fraud prevention solution provider.