The Supply Side: Fraudulent retail returns become mainstream with $23 billion in losses

The National Retail Federation (NRF) reports that 10.6% of online returns are fraudulent, totaling more than $23 billion in 2021. It is often a retailer’s best customers who are taking advantage of the system and contributing to the loss, according to a recent report from marketing firm Narvar.

The report indicated fraudsters often claim an item wasn’t received or fib about return reasons to get free shipping. They also practice “wardrobing,” which is, for example, intentionally buying a TV for a big event and then returning it. Narvar said these small bites consumers take erode margins at retailers and add up to big problems.

“By understanding the different types of problematic behavior associated with returns – and their deterrents – retailers can more easily solve the biggest pain points in their current returns processes and personalize the experience to curb further issues,” said Anisa Kumar, chief customer officer at Narvar. “By adding some additional checkpoints to the process, personalizing the experience, and offering the right loyalty incentives, retailers can prevent a significant amount of revenue loss associated with returns.”

The report said nearly two-thirds of consumers engage in deceptive behavior regarding returns, and only 35% of consumers abide by all return policy rules. A whopping 60% are identified as “rule benders.” These customers will bend the rules out of convenience or won’t bother to report a mistake in their favor, such as when they receive an extra item or say they didn’t receive their purchased item but find it later and don’t correct the record.

Most online shoppers who bend the rules are likelier to respond well to convenience. Nearly 40% say if returns weren’t such a hassle and retailers offered home pick-up, they’d be more likely to do the right thing. By making it easy to report issues like extra items or packages, retailers can close some loopholes people take advantage of out of laziness, Narvar recommended.

Intentional policy abuse can be deterred by adding additional checkpoints in the system, according to the report. The report stated that retailers should require a photo upload to prove damage, enforce account login or receipt to initiate a return, and steer suspicious returns in-store when possible.

The Narvar research also revealed other critical behaviors about fraudulent returns. These shoppers take advantage of return policies for monetary gains, such as falsely claiming that an item was damaged when received or that it never arrived. The policy abusers account for about 25% of the fraudulent returns.

Almost 30% of consumers who admit to that behavior, unfortunately, engage in it more than once or twice, and most justify their actions by demonizing the business, Narvar reported.

Wardrobing is another huge problem and one of the hardest for retailers to curtail. Narvar said wardrobing turns every retailer into a rental service. The report looked at serial returners classified as wardrobing or bracketing.

Wardrobing is a pattern of purchasing expensive or rarely used items and returning them. The signs to retailers that wardrobing is happening is that everything in the order gets returned, and items often show signs of wear. Another clue is infrequent customers who make one large purchase a year.

The categories most often involved in wardrobing are garments for special occasions at 42.5%, followed by household items at 39.3%, beauty products at 18.6%, jewelry or luxury items at 17.9%, luggage for a trip at 18.6%, and a television for a big game at 17.5%.

Narvar said men are more likely to wardrobe than women. But women are much more likely to wardrobe garments than any other type of item, whereas men wardrobe across a greater variety of categories. Men also do this more frequently, as 44% admit to wardrobing more than once or twice versus 32% of women.

The biggest reasons wardrobers give for doing it include a lack of responsibility to purchase and keep items they want if they aren’t used frequently. Their number one reason is that they can’t afford it. One in three said it doesn’t make sense to keep an expensive item worn just once or twice, and 20% say they retaliate against the retailer’s poor service.

Narvar said wardrobers know what they are doing is wrong and are likelier to take advantage of big companies, as 23% said they wouldn’t do this with a small brand.

Nearly a third said their conscience would eventually keep them from wardrobing, but it hasn’t yet. Narvar said the best course of action to prevent wardrobing is to be vigilant about identifying serial wardrobers and warning them about repercussions. Retailers can start by reducing perks like instant refunds to the original tender and quickly escalate to blacklisting.

Narvar said it’s essential for retailers not to confuse bracketing customers with wardrobing. Bracketing customers will order different sizes, colors and styles and then try them on at home, returning what does not work. That is a legitimate shopping behavior that is often mistaken for wardrobing.

Narvar said the big difference is that the returned items are not used or worn. The easiest way to spot a bracketing client is to look for a pattern of subsequent purchases or exchanges demonstrating a better understanding of fit/sizing. That will likely indicate that these shoppers are frequent but legitimate customers.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.