It’s January, which means that returns season is in full swing for retailers. New Year resolutions are usually all well and good, but a recent survey suggests that many customers have started the year determined to cheat merchants via returns abuse — and that this intent was premeditated even before the holiday buying spree began.
Alarming Returns Abuse Trends
In 2023, returns abuse-related fraud emerged as a significant issue in retail, with the National Retail Federation (NRF) reporting $101 billion in overall losses, and an average loss of $13.70 for every $100 in returned merchandise. The holiday season is particularly affected, with an estimated $25 billion in fraudulent returns.
And now, a new consumer survey we commissioned in the U.S. and U.K. reveal an alarming trend: consumers intentionally planning to abuse return policies. An alarming 1 in 4 U.S. consumers (25%) and 27% of U.K. consumers bought an item intending to return it after use during the 2023 holiday season.
The survey highlights “wardrobing” as a major form of returns abuse, where items like clothing (36% in the U.S., 36% in the U.K.) and shoes (25% in the U.S., 23% in the U.K.) are bought, used, and returned. Surprisingly (or unsurprisingly? Nothing should shock me anymore), personal electronics also suffer from this trend, with 19% of U.S. and 22% of U.K. consumers temporarily using items like mics, headphones, or cameras before returning them.
The Boomerang Effect: Why Cheating Customers Pay the Price
Behavioral studies suggest consumers are more likely to cheat, such as returning used items, when they believe it’s justified — particularly with larger retailers. These forms of returns abuse are widespread and significantly impactful across industries.
Retailers lose an average of $145 million in merchandise returns for every $1 billion in sales. And as the cost of returns escalates, impacting the retailer’s profit margins, they’ll increasingly focus on reducing these occurrences.
But this rise in returns abuse not only burdens retailers; it also burns consumers. The processing cost of returns averages 27% of the purchase price, meaning returns abuse can potentially drive up costs and inventory uncertainty, which risks increasing consumer prices further down the line.
Restrictive Policies Are Not the Answer
Some brands have tried to limit the impact of returns abuse by changing their policies – we’ve all experienced at least one of our favorite retailers shifting from easy returns to a more complicated process. Nearly nine in 10 retailers (87%) have updated their return policies this year, while almost half (44%) of retailers increased their return and restocking fees.
But there’s a sense in which retailers are between a rock and a hard place. The consumer surveys found that 70% of U.S. and 72% of U.K. consumers will abandon a brand if their return policy becomes too complicated – with 57% (U.S.) and 58% (U.K.) stating they would no longer purchase from a brand if they charge for returns.
Customers also noted sensitivity to bumps in returns and refund experiences. Over two in five consumers in both the U.S. (41%) and U.K. (43%) said they would stop purchasing from a brand if they had slow return and refund experiences. Worse, 32% in the U.S. and 29% in the U.K. say they would avoid purchasing entirely from a merchant with a short return window.
The message from all this seems clear: trying to reduce the loss caused by returns abuse by making policies more restrictive will likely cause loss from a different direction — annoyed customers who decide to spend their money elsewhere.
Time to Rethink Returns
Retailers face the challenge of protecting themselves from returns abuse while maintaining a streamlined, flexible shopping experience for their customers, including the returns process.
Many merchants find that the best way to differentiate themselves in today’s marketplace is by personalizing the consumer experience as much as possible. In fact, this is why some of the top retailers came to us in 2023, looking to develop policies that benefit both them and their customers.
I think this same approach is also the answer to solving the returns dilemma.
These trends in returns abuse are why Forter’s customers are looking to us for more than just fraud prevention (If you haven’t seen Forter’s next-generation Abuse Prevention offering, learn more). We know that personalizing policies to customers rewards good behavior and can protect stores from what would otherwise be the consequences of bad behavior.
It’s time to rethink how we approach returns, using the personal touch already employed in other areas of digital commerce.
Doriel Abrahams is the Principal Technologist at Forter, where he monitors emerging trends in the fight against fraudsters, including new fraud rings, attacker MOs, rising technologies, etc. His mission is to provide digital commerce leaders with the latest risk intel so they can adapt and get ahead of what’s to come.