Dive Brief:
Large-Scale Returned Merchandise: A Financial Overview for 2020 - $743B in returns, $101B attributed to fraud, according to National Retail Federation
Sonic Boom: Echoes of Return Fraud among Top Retailers
Last year, the total value of returned merchandise clocked in at an eye-watering $743 billion, equating to a staggering 14.5% of all sales, according to research by the National Retail Federation (NRF) and Appriss Retail. This startling figure is derived from surveys conducted among "more than 60 of the top 100" U.S. retailers.
The research uncovered the presence of fraudulent returns, which includes everything from deceitful use of counterfeit receipts to organized retail crime, resulting in a whopping 13.7% of all returns. When you crunch the numbers, this amounts to a whopping $101 billion!
In December 2022, the NRF and Appriss projected that an astounding $816 billion worth of merchandise was returned that year. However, it's essential to note that this result isn't comparable to this year due to a change in methodology, as mentioned in an NRF press release.
So, what does this year hold? With holiday e-commerce projected to be off the charts this year, an elevated level of returns is expected, with estimates suggesting that as much as $82.1 billion worth of merchandise might end up returning to stores.
As retailers prepare for this return frenzy, many are bracing themselves for the inevitable surge in fraudulent returns. To combat this, they are increasingly adopting various tactics to catch these deceitful practices, such as:
- Implementing stricter return policies: Requiring proof of purchase and enforcing "no receipt, no return" rules more stringently.
- Delving into the deep end: Manually inspecting high-value returned items before issuing refunds to reduce fraud.
- Staying one step ahead: Using algorithms and workflows to block or manually review return requests displaying suspicious patterns, such as returns made before delivery or those on all items in an order.
- Getting smarter: Relying on advanced analytics to identify patterns of abuse and guide staff training and policy adjustments.
- Cleaning up their act: Improving payment and refund management systems to better handle fraudulent refund requests and first-party misuse.
However, it's important to remember that not all returns are fraudulent. In fact, some practices like "bracketing," where customers order multiple sizes or colors of an item with the intention of returning at least some, could indicate less-than-perfect product reliability, poor product descriptions, or lacking customer reviews.
As the retail world grapples with the growing challenge of return fraud, it's becoming increasingly crucial for merchants to find a balance between fraud prevention and maintaining a positive customer experience. It's vital for retailers to determine the root causes behind suspicious returns and take steps to reduce these occurrences without alienating loyal customers.
Dive Insight:
Dealing with a tsunami of returns has never been easier (or harder), thanks to the rise of e-commerce. To adapt to this ever-evolving landscape, the NRF expanded its own membership last year to accommodate the burgeoning industry associated with returns.
As retailers continuously evolve their strategies to combat return fraud, it's crucial for them to tread carefully to ensure they don't inadvertently hamper the "frictionless retail" experience consumers crave. Retailers are shortening return windows, implementing return fees, requiring identification, and limiting refunds to store credit to manage returns. However, these policies can sometimes backfire by driving customers towards counterfeit receipt fraud, necessitating better detection methods.
It remains unclear how fraudulent returns fit into the NRF's annual shrink report. When asked for elaboration, the group refused to comment, citing a lack of time.
Inventory losses caused by various factors, such as theft, operational errors, and systemic errors, rose to 1.6% in 2022 from 1.4% in 2021, according to the NRF's annual retail security survey. However, it's important to note that these statistics don't include return fraud.
Enrichment Data:
The rate of fraudulent returns has significantly increased among top U.S. retailers in recent years, causing substantial financial losses amounting to over $100 billion annually. Factors contributing to this challenge include first-party misuse and the targeting of specific sectors like Apparel, Electronics, and Home Goods.
Retailers are adopting a combination of strategies balancing fraud prevention with maintaining customer loyalty, such as stricter return policies, manual reviews, sophisticated fraud detection analytics, and improved refund management processes. However, these measures must be implemented carefully, as stringent policies can sometimes inadvertently encourage counterfeit receipt fraud.
- The total value of returned merchandise in the retail industry last year was estimated at $743 billion, accounting for 14.5% of all sales, as research by the National Retail Federation (NRF) and Appriss Retail revealed.
- The research uncovered that fraudulent returns, including the use of counterfeit receipts and organized retail crime, constituted 13.7% of all returns, equivalent to a staggering $101 billion.
- This year, with holiday e-commerce projected to be high, an elevated level of returns is expected, with estimates suggesting that as much as $82.1 billion worth of merchandise might be returned.
- To combat fraudulent returns, retailers are adopting tactics such as implementing stricter return policies, using AI and advanced analytics for fraud detection, and improving payment and refund management systems.
- While not all returns are fraudulent, certain practices like "bracketing" could indicate less-than-perfect product reliability, poor product descriptions, or lacking customer reviews.
- As retailers strive to find a balance between fraud prevention and maintaining a positive customer experience, they must determine the root causes behind suspicious returns and take steps to reduce these occurrences without alienating loyal customers.
