Fraudulent Returns: Inside a Customer’s Bag of Tricks

Customers are filling their bags with more than products, and it’s not stopping at brick-and-mortar stores.

Customers are manipulating loose return policies in order to trick the system.  Customers are returning worn clothes, using deals and coupons to get free stuff, and getting cash for gift cards. Fraudulent returns are becoming more of a problem for brick-and-mortar stores, and now it’s affecting ecommerce retailers.

Return Policies are Good for Sales

Return policies have long been known as an important part of a retailer’s offerings in order to enhance sales.  The simple solution for these consumers’ tricks would seem to be a tougher return policy. However, that could actually backfire and create a loss in sales.

The problem with a tough return policy is that it makes the customers who are trustworthy feel like they are being punished for others’ actions.  It leaves the customer feeling like they are not trusted by the store and it affects the way that they interact with the store.  It evokes a sense of betrayal.

Loyal customers expect that retailers have flexible return policies. After all, authenticity and transparency are important values that loyal customers look for in a retailer.

Fraudulent Returns are Becoming More Common

Fraudulent returns are on the rise.  In fact, they are up 19% since 2007.  For every one-dollar that is spent on merchandise today, nine cents is returned.

“While coverage of this issue paints return fraud as one of the ‘less severe’ retail crimes, the fact of the matter is that returning used or stolen items, or even using false tender to purchase items is fraud, period,” said NRF Vice President of Loss Prevention Rich Mellor. “Recent efforts to combat fraudulent activity are slowly starting to work, but criminals are becoming more savvy and technologically advanced in their methods, making it even more difficult for retailers and law enforcement to keep up with the growing problem.”

Customers are commonly wardrobing, which involves buying products in order to use for a one-time event and then return afterwards.  They spend a minimum of a certain amount of money to get a gift and then return everything but the freebie.  They find discounts and coupon codes meant for loyal customers on aggregator websites.

Playing Modern-Day Robin Hood

The fact is that a majority of these customers don’t feel like they are doing anything wrong.  They believe that their tactics are necessary in this shaky economy or simply label it “smart shopping.”  Some even believe that they are doing society good by getting back at the retailers and corporations that overcharge for products. Of course, there are some who are in it just for the thrill of a bargain hunt.

Ecommerce Subterfuge Gains Momentum

As more and more people do their shopping online, ecommerce return fraud is becoming more common.  Last year, return fraud cost retailers nearly $14.4 billion, up from $9.4 in 2009.

These are just a few of the fraudulent return tactics that ecommerce retailers have experienced in the past year:

• 96.5% have received stolen goods as returns instead of the products originally ordered.
• 84.2% received products purchased illegally as returns.
• 64.5% experienced customers using the product and then returning it.
• 45.6% of companies have received counterfeit products as returns.
• 80.7% are impacted by fraud perpetrated by employees.

“Consumers are savvier and smarter than they’ve ever been before,” said Matthew Ong, senior retail analyst at online personal finance company NerdWallet Inc. “There’s so much more information available — they’re talking to hundreds, thousands of other people.”

Online retailers are discovering that they must walk a fine line between flexible returns and not making it easy for customers to manipulate the return policy.

Every customer touch point counts, and it is important to keep the return process a good experience for customers, despite the fact that return fraud is occurring.