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The Return Apocalypse: Avoiding Holiday Return Fraud

by Mike DeFabis on 2017-12-21 09:43:38

iStock-628099358.jpgShipping deadlines have come and gone, most of the shopping panic is over, and now it’s time for retailers to focus on something more daunting: the return apocalypse. According to Appriss’ return fraud results from the National Retail Federation 2017 Organized Crime Survey, nearly $351 billion dollars (10% of total sales) is estimated to make up returned merchandise after the 2017 holiday season. In 2016, nearly 66% of consumers returned at least one item after the holidays and 27% had bought items specifically with the intention of returning them later.

With returns in the forefront of retailer’s minds, there is another pesky problem that has been gaining momentum: return fraud. Simply put, return fraud occurs when a customer attempts to return an item that was fraudulently purchased, is damaged or broken, or flat out stolen for a refund or replacement. The NRF estimates the amount of fraudulent returns reflecting total returns will be roughly 5%, but can go as high as 10.8%, that’s at least $17.6 billion. Overall, retailers lose more than 3.4 billion dollars out of the estimated $681 billion in sales due to return fraud during the holidays. Due to the high retail revenue losses from return fraud, states are losing $1.1B-$1.4B in sales tax revenues.

Though there are many different ways return fraud is committed, generally there are 4-5 methods that seem to be the most popular. The most common type of return fraud is the return of shoplifted merchandise, this makes up 68.3% of return fraud. This can effect internet retailers also as shoplifters are known to use forged receipts to gain a refund, and can accomplish this through online retailing also. Another common attempt at return fraud is the return of merchandise purchased fraudulently which makes up roughly 57.1%. Retailers also must be on the lookout for customers attempting to return broken, damaged, or used merchandise claiming the object “came that way” or “was broken by the delivery method.” Finally, wardrobing (also known as renting) is a newer rising trend among forgers. This occurs when a customer buys an item for short-term use with intent to return; this is a form of return abuse or excessive violation of a retailer’s return policies.

The holidays are stressful enough for retailers, even once they’re over. The last thing we want to worry about is the possibility that a large bulk of returns are going to be fraudulent. Now that we know how customers are attempting return fraud, we need to understand how to avoid this problem as 2017 closes and we begin a new year.

Sync your returns database with your customer database

If you wish to have the ability to identify potential fraud in time to stop any suspicious transactions, you need to reconcile a return claim with any specific customer’s history. This allows retailers to analyze large amounts of data using your business intelligence platform to pinpoint which customers make warranty claims in high volume to save money in customer-service workload and improve customer experience.

Individualized Promo Codes and Coupon Limits

Promotional codes and e-gift cards can be surprisingly easy to forge, and result in a very common type of return fraud. Though avoiding this problem probably isn’t going to work 100% of the time, there are steps you can take to combat it at and be able to detect the fraudulent purchases. Promo codes are very popular among customers because they can be sent in an email blast and used multiple times quite easily. More than 57% of customers said they are more likely to buy a product from a site when the retailer emails them a discount code. The problem with this is they can go viral on social media, a rush of usage can deeply cut into a retailer’s profits and they are very easy to defraud because they are unlimited and restriction free. This ends up costing the retailer much more than the code is worth. Consider assigning a unique code to individual shoppers rather than one accessible to the general masses. Also, set your discount engine to limit the amount of times each code can be used and how many times each shopper can use them. One other thing you can do is place a rather timely expiration date on each promo code so fraudulent customers don’t have as much of an opportunity to take your money.

Use Rule-Based Discounts

Tying into the fraudulent use of promo codes; you can simply not use them to begin with and consider using a rule-based discount. This is a preprogrammed condition that applies to a shopper’s online purchase. Once all of the conditions are met in a customer’s order (like BOGO or two for one), the discount is automatically applied to their cart. This gives you total control over promotions on your terms. You set the duration, the total number of times it can be used, and what or how many items it can be applied to. Utilizing this method basically keeps the option for fraud at a distance, you’d have to be pretty savvy to abuse something this specified.

We understand that some fraud is going to be inevitable during the holiday return season, but you don't have to be the victim. You must understand how fraud works in order to protect yourself and your business from getting scammed. With the right preparation you can end your holiday season and head into a successful new year feeling a bit more comfortable. 

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