Plagued by Return Fraud? Here are some Strategies to Save Your Business

Do you want your customers to buy as much as possible from your store?

Of course, you do. We all want that don’t we?

However, with good sales, you are also often plagued by the curse of customer returns. Well, as a seller, you must and always strive towards minimizing chances of returns in the most cost-effective ways. But what’s the escape from fraud returns?

The National Retail Federation in its survey estimated that fraudulent returns in the retail industry cost sellers around $15 billion in 2017. Now that’s a shocker, isn’t it?

But that’s not all.

Return fraud is slowly creeping its way into e-commerce too. Online retailers could face a 5.5% increase in fraudulent PayPal transactions in the near future, the NRF says.

Before we delve deep into what return fraud is, as a seller you need to understand the psychology behind customer returns.

If you have a physical store, customers might return products for credits, returning clothes after they are damaged or stained saying it was already so.

If you have an e-commerce store, shoppers might return products on account of the free and flexible return policy provided. Additionally, the most common reason customers state for returning items online is that the product received does match (in color, size, texture) with what they had seen on your store.

Albeit are all customer returns genuine?

You’ll be surprised to know sometimes customers may have antagonistic objectives. We’ve created a rundown on some common types of return fraud which you should know about before falling victim to this growing problem.

Common Types of Return Fraud

• Wardrobing or ‘free renting’: this is probably the most kind of return fraud. Wardrobing is when a customer buys a product, uses it once and returns it for a full refund.
• Returning stolen merchandise: there are times when items are shoplifted from the store and returned as a purchased item.
• Returning exchanged items: customers sometimes purchase products and replace them with damaged or broken items.
• Price Arbitrage: this involves buying similar-looking items that are differently priced, and returning the cheaper one as the more expensive item.
• Shoplisting (also called ‘shoplifting using found receipts’): Immoral customers use stolen receipts that are valid as shopping lists to find products in a store and then return them for a refund.

Signs that Return Fraud is Affecting your Inventory

Too many cases of return fraud can have a significant impact on your inventory. Just to be sure, look out for the following signs if you think return fraud is affecting your inventory levels.

1. Inventory shrink rate is high- Too many returns frauds can be visible in your stock levels, as you will notice a significant loss of inventory between accounting periods.
2. Too many returns- Obviously too many returns could also equal too many return frauds. It often happens that unlawful customers can pass on their tactics to their ‘friends’ who may also ‘shop’ from your store.

So, now it’s pretty evident that return frauds are a looming issue for both store retailers and e-commerce sellers.

Then what is the solution to the problem?

Read on to know about some quick tips and what some industry experts have to say:

Have a clear return policy

Customers desire a seamless shopping experience that gives them the flexibility to ‘shop till they drop’. A return policy can be that USP for brands. But tread carefully, many customers take undue advantage of a return policy.

You can take a cue from the image above. Just like this store has specified the rules for returns and exchanges, businesses should also remember to clearly specify the terms and conditions for customer returns like-

• Duration for the return like 7 days or 30 days.
• Ask customers to show the invoice when returning the product
• Specify the need to show the packaging, price tag, receipt while returning the product
• Include return fees or shipping charges when accepting return
• Ask for identification when accepting returns

Record Product Pictures and Documents

Dan DeBaun, the owner of Big Berkey Water Filters, has stressed on the importance of keeping records and pictures of the documentation involved every time a shipment is returned. He says-

“Besides have a clear return policy on the website, we take multiple picture angles and create written documentation of all products returned to our warehouse. If a customer sends back a damaged product that cannot be resold (as detailed in our policy), we will not process the refund. We will contact the customer with pictures and documentation regarding our decision again referencing the policy. If the customer then files a claim with their bank/credit card company, we provide this documentation to the dispute review agent. Our clear return policy combined with this photo/text documentation has resulted in our company winning claims 75-80% of the time.

When it comes to chargebacks, we also document the Matching AVS info from the credit card processor along with defaulting all packages shipped with a “signature required” at checkout. If the customer waives this and chooses the “no signature required” option, we explain how they are held liable for shipments that are shown as carrier delivered.”

Automation and AI

Automation can be a savior when it comes to preventing return fraud. Automation triggers, as part of sophisticated software, such as order management system or inventory management software, can help you identify fraud by marking orders from unknown addresses or marking extremely big orders from any particular marketplace as fraud orders. All you need is identify possible or existing fraud behavior from your sales history or by general awareness, and set triggers in your inventory management software to automatically add tags like ‘possible fraud’ to incoming orders from any such identified (verified or unverified) sources. This will warn you or team well before these orders are taken into processes.

Artificial Intelligence(AI) when integrated with Machine Learning, can analyze user behavior patterns such as too many returns from a specific account or pin code, or transaction problems. Artificial Intelligence uses in-depth learning to correlate individual consumer’s shopping behavior or patterns and past return history to understand if a product will be returned at all.

Technologies such as these two are major sources of big data which greatly assists in inventory management since they record and analyze consumer buying behavior, purchase and return history of customers to expose any discrepancies in stock levels by giving a fair idea about the personality of such shoppers.

Keep an Eye on Large Orders

We asked Alex Reichman, CEO of iTestCash, and he has shared some of his ways to deal with return frauds. This is what he has to say-

“One thing that has helped me avoid return frauds is to analyze any big orders I receive. Most people won’t bother with return fraud on small money orders.

Two effective things you can do to ensure yourself from fraud-

1. Google the customers address to see that there’s nothing sketchy associated with. For example, I once saw an address that I googled and something came up about it being a scammers address, and right there I saved myself from a scammer.

2. Call the customer yourself! In most cases, scammers will provide fake numbers or won’t even pick up. If someone answers you can be straight forward and say we’re just double checking to make sure the order is authentic and in most cases, a phone call can clear things up.”

Ban Repeat Offenders

Amazon in recent times has been closely tracking customer accounts with too many returns. If the marketplace is suspicious about a customer, they usually issue a warning via email to that customer asking for an explanation. Take a look at the image below of a warning email sent by Amazon.

Brian Sheehan, Marketing Manager at Hollingsworth, feels somewhat similar Amazon and he has also provided some interesting ideas to tackle return frauds.

“We are a national supply chain and logistics company. We work with over 300 vendors and offer warehousing, fulfillment and return logistics for certain clients. We service both B2C and B2B clients.

When offering return logistics for a client, we have rules in place in terms of what to do with used and returned merchandise. If merchandise is in new and resellable condition, we will place it back on the shelves. Some things that we check for are matching serial numbers. If someone returns a counterfeit or swapped item, we will make a note of it on their account. If it occurs more than once, we will then ban the buyer and inform our vendors. We also work closely with NRF, to provide info to better assess and create parameters to prevent return fraud. The NRF makes it essentially difficult for people to return products on a continual basis by tracking ID information that is collected at the POS and again at the point of return (POR). Of course, we cannot track everyone who is making a fraudulent return at all times. We can only do our best to identify repeat offenders by banning them.”

Offers, Low Prices, Or Gift Vouchers instead of Free Return Policy

As mentioned above, fraudulent customers often take undue advantage of a free return policy. Too many returns can result in a major setback for your bottom line, inventory levels, carrying costs and reverse logistics costs.

An interesting way to avoid return frauds could be that sellers can provide competitive or low prices on their products instead of a free return policy. As Alex had mentioned above, customers will not bother about return fraud for orders with a small monetary value. This way, if prices are low, even if they buy a product they might not feel the need to return it, as there is no significant gain from it.

You can also offer some respite to customers who don’t have a receipt. For example, JCPenney offers a merchandise voucher for whatever the item’s lowest selling price was in the last 45 days.

Target proffers gift cards instead of traditional returns for customers without a receipt. However, there are limitations to select categories.

Summing up

Return fraud is a recurring problem for sellers, be it in physical or online stores. Taking a cue from the expert opinions above, we can at least try to curb the problem of online returns by keeping a vigilant eye on our inventory management and reviewing our customer returns processes in order to avoid them.