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Returns are notorious for being a logistical nightmare and cost burden for e-commerce businesses, with consumers insisting on free return shipping and no questions asked refund policies. What began as well-intentioned, consumer-friendly policies opened the door to bad actors exploiting the rules and behaving in ways not typically seen in brick-and-mortar stores where face-to-face returns are required.
Dishonest consumers feel emboldened by the anonymity of online returns, justifying their behavior as “friendly fraud.” However, by taking advantage of the returns process, consumers are deceiving e-commerce businesses, eating into already slim profit margins, straining resources, and devaluing inventory for their gain. When did this become an acceptable cost of doing business?
Perhaps underestimated are the environmental impacts of returns from CO2 emissions and packaging and the misconception that merchants resell the goods. Estimates of 5.8 billion pounds of returned merchandise ending up in landfills during 2020 should be a sobering thought.
In the 1960s, when frustrations with five-fingered shoplifting became widespread, stores moved to implement EAS tags as a loss prevention measure. Fast forward to 2022, the e-commerce industry is in desperate need of the same proactive solution, in a home-removal form, to stem the tide of online return fraud.
With receipted return policy abuse on the National Retail Federation’s radar, it is time to establish how $23.2 billion in online returns were deemed fraudulent in 2021 and what new loss prevention measures can curtail this trend.
Types of Return Fraud
- Wardrobing / wear & return
- Counterfeit product switches
- Cross retailer returns
- Tag switching
- Wardrobing / Wear & Return
Wardrobing, or wear and return fraud, is the most recognized type of receipted return policy abuse. In this scenario, a consumer buys merchandise with the intent of using it for a short period of time and then returns the item for a full refund by misrepresenting the reason for the return. With free shipping, free returns, and extended return windows, consumers exploit the returns honor system when they fraudulently use and send back non-defective merchandise at no cost.
Special occasion events like proms, weddings, interviews, parties, date nights, and family photos are classic targets for wardrobing return fraud. The social pressures of not wearing the same outfit twice or always wanting to be seen in the latest trends trump people’s moral conscience.
What is most concerning is that this type of fraud is not undertaken by seasoned criminals but by consumers who knowingly defraud the system. In a 2020 survey by Secure Authentication Brands LLC, 37% of respondents admitted to wardrobing. Worryingly, most respondents would not be considered likely return fraud perpetrators; 63% were college graduates, 58% make over $50K/year, and 61% were Skilled, Professional, or Managerial employees.
The prevalence of designer hangtags attached with petite safety pins or colored cords neatly tied in a double knot makes this deceptive practice straightforward. Any tag that can be hidden or removed and reattached to an item without evidence of tampering creates an opportunity for return policy abuse.
Another e-commerce category rising in prominence is the resale of preowned items. Merchandise with existing signs of use or wear is susceptible to wardrobing. The consumer has no wear evidence to cover up and no original tags to hamper their fraudulent actions. No longer just limited to online marketplaces like ebay, fashion brands and dedicated e-commerce businesses, driven by the push for sustainability in the fashion world, are embarking on new ventures in the resale market. It’s a dream scenario for wardrobers.
Do you agree with this statement?
Influencers and fashion bloggers should be allowed to buy the latest fashion, take photos of themselves wearing the items, blog about their on-trend outfits, and return them to the e-commerce business for a full refund.
Recently, a blogger did precisely that when she returned 85% of the items she purchased from a retailer within the return window. This is a gross exploitation of merchants’ return policies but is becoming more common as social pressures and the desire for consistent engagement of followers forms the backbone of the fashion influencer world. Imagine if all consumers engaged in this practice!
Snap-and-send-back has become so prevalent that ASOS, a UK-based online retailer, announced tracking social media accounts of serial returners, blocking those abusing their return policy.
- Counterfeit product switches
The rise of e-commerce has aided the proliferation of counterfeits circulating globally. While not a new concept, consumers can now acquire counterfeit items from difficult to police third-party sellers, which presents opportunities for product switching.
Imagine this scenario: a scammer buys a counterfeit item for a fraction of the actual item’s price, purchases the genuine article from an authorized seller, and returns the fake to that seller for a full refund. Yes, e-commerce businesses need to be concerned. This problem is exacerbated by the increasing quality of counterfeit items, sometimes produced in the same factory as the genuine article.
With returns reaching 30%, even the most vigilant e-commerce business may miss spotting the counterfeit switch, proceed to place the product in the reverse logistics channel, and unknowingly put their reputation at risk by reselling the fake to a legitimate consumer.
- Cross-retailer return switches
Cross-retail returns are another example of bad actors exploiting generous return policies for their gain. In this situation, the consumer takes an item; stolen or purchased elsewhere for a lower price; initiates an in-store, non-receipted return, and receives a refund in the form of a gift card or cash.
This practice is most widespread when stores are busy during the holidays, and price discounts are typical.
- Tag switches or retagging
Items most at risk from being fraudulently returned are those tagged with a standard plastic barb. For under $10, consumers can purchase a 1000 barb tagging gun kit from Amazon and retag or switch tags effortlessly and cheaply.
Tag switching and retagging is a method used by dishonest buyers to return less expensive but similar-looking items at higher prices and profit from the price differential.
New eCommerce Return Fraud Solution
360 ID Tag – a single-use, tamper-evident return tag
Achieving balance with returns comes with recognizing the two sides of the equation. On the one hand, consumers’ expectations of generous return policies are deemed essential for customer loyalty and satisfaction. On the other hand, businesses face harsh economic realities handling their reverse logistics operations.
A blanket, one-size-fits-all approach that penalizes honest shoppers with stricter return policies to quell instances of return policy abuse is not a tenable solution. Instead, preventing the bad actors from carrying out their return fraud tricks is the ultimate move e-commerce businesses, and marketplace sellers can make to protect their merchandise. A new home-removal, secure return tag that deters return fraud strikes the perfect balance by eliminating opportunities for deception without alienating honest buyers.
Invented by an ebay seller who needed to protect designer dresses from being worn and returned, the patent-pending 360 ID Tag is a win-win for honest consumers and businesses pushing back against return policy abuse. By strengthening existing return policies, the tamper-proof tag gives e-commerce businesses a low-cost and practical loss prevention solution to deter return fraud and eliminate losses and reverse logistics challenges attributed to this growing problem.
ABOUT 360 ID TAG
Designed to combat return fraud, the tamper-evident 360 ID Tag creates a fairer trading environment for e-commerce companies and marketplace sellers. The anti-return fraud tag is a loss prevention tool targeting egregious consumer behaviors such as wardrobing or wear and return fraud, tag switching, snap-and-send-back, and counterfeit product switching. Request more information about the “visible on purpose” 360 ID Tag including customization options.
Navigating the post holiday downs and creating positive upturns
The holiday banners have come down and the influx of orders and inquiries have slowed. Now what? The post holiday season can seem like a bit of a downer for eCommerce businesses. In this guide, we will delve into two aspects of better handling the off season.
- The unfortunate reality of post holiday return fraud and chargeback disputes
- Six tips for generating new revenue in the quiet off season months
What is Return Fraud?
Return fraud is when ill-intentioned shoppers take advantage of a store’s return policy for personal financial gain. While return fraud is more prevalent in brick and mortar stores, eCommerce businesses should be on the lookout for the following three types of eCommerce return fraud:
- Merchandise Swapping
- Friendly Fraud
Wardrobing Fraud occurs when a customer purchases a designer or pricey item with the intention of using it briefly and then returning it for a full refund. Designer dresses, evening wear, tuxedos, high end TVs and electronics are the most popular targets of wardrobing fraud. A woman may purchase a gown for a black tie event, tuck the tags inside the dress, and return it after the affair. Similarly, a large TV or powerful speakers may be purchased for a special event and returned after the occasion.
Merchandise Swapping Fraud is a little more sinister. This type of fraud is committed by unsavory shoppers as a way of keeping their products “up to date.” A criminally minded person will purchase the newer version of something they already own and return their old product in the new packaging.
Friendly Fraud is a term used to describe unsubstantiated “Items not received” claims via the chargeback process. A customer disputes a charge on their credit card, untruthfully claiming to have never received their purchase. They feign innocence in hopes of receiving a full refund and not having to pay for their purchase. The customer often justifies their behavior by assuming that the credit card company, whom they view as a large greedy corporation, can “afford” to take a small loss on the order, without realizing that the retailer is the one that actually loses out.
How to Mitigate Return Fraud
A good return policy is vital to every online retailer. The convenience and show of good will that a user friendly return policy provides is beneficial in increasing legitimate customer patronage and trust. However, eCommerce businesses must walk the delicate line of offering a generous return policy without getting abused by customers committing Return Fraud.
Publicizing your generous return policy is good practice, and it encourages customers to complete a purchase with confidence. This can be accomplished by clearly stating your return policy on your website, on your FAQ page, on your checkout page, and including a printout of your return policy in every order.
To deter fraud from occurring, it is advisable to clearly state in your policy the precise conditions of merchandise that are eligible for a refund. For example, items need to be unworn and will be inspected upon return, all sales tags must be attached and intact. A practice many retailers are adopting is attaching tags to side seams or button holes that can’t be inconspicuously tucked away and make wardrobing fraud more difficult.
Preventing Merchandise swapping can be done with a few shifts in policy and some education. Requiring documentation, such as a receipt of purchase before a refund is issued, as well as training staff to inspect returns, ensuring the item returned is the same one on the packing slip, can help root out shoppers attempting to swap merchandise.
Issuing tracking numbers to prove delivery of goods is an effective way of mitigating fraudulent ‘items not received’ claims. Requiring signature confirmation for high value goods can also be an effective method to prevent INR chargeback abuse/Friendly Fraud and can also be used as additional proof to the bank that the package was, in fact, delivered.
If, however, you are noticing an increase in returns, a decrease in the salability of returned items, or inventory inconsistencies, it may be time to upgrade your fraud prevention solution. Being preemptive, as opposed, to reactive, is the most strategic way to get ahead of fraud. An advanced fraud prevention solution is trained to identify and prevent any type of fraud without any heavy lifting on behalf of the merchant.
Post Holiday Chargebacks
Being hit with increased chargebacks are a sure sign that your fraud prevention measures need examining. The off season is the perfect time to take an accounting of how much time and money your business spends on fraud and fraud related tasks, such as manual review, shipping delays due to fraud screening, rate of canceled orders, chargebacks, disputing chargebacks, etc. An upgraded fraud prevention solution can relieve your business of all fraud related tasks and liability. The right fraud prevention will work to increase your approval rate and often offers a full chargeback guarantee and chargeback dispute management service.
Six Methods of Increasing Post Holiday Revenue
Now that you’ve taken stock of the impact of the holiday season, the revenue and fraud losses, let’s discuss how you can maximize this time to lift your bottom line.
- Take advantage of all new visitors to your site during Q4. Studies show that 96% of first time visitors are “window shopping” and not ready to buy on their first visit. Retargeting first time visitors is a great way to bring them back and turn them into customers.
- Send a ‘Thank You’ offer to all the holiday shoppers who made a purchase on your site this past season. Repeat customers spend 33% more than new shoppers. Use the following tips to make the email most effective.
- Send a unique, promo code, and have it auto-load into their shopping cart.
- Offer a small gift and automatically add it to their shopping cart. Having an item already in their cart makes adding additional items easier. It also serves the purpose of initiating automatically generated “Cart Abandonment Emails” if they do not complete the order. (Read more about “Cart Abandonment Recovery” HERE.)
- Provide offers with extended expiration dates, this can serve to compel shoppers to save your email for later use instead of instantly deleting it.
- The New Year often brings new resolutions in with it. Market your products as being able to assist in upholding New Year’s Resolutions.
- Even after a month worth of holiday promotions, shoppers never tire of a good deal or sale. Now is a good time to clear out old merchandise by offering a clearance, final sale, or BOGO deal.
- Most businesses experience a downturn in order volume in Q1. Now is a good opportunity to get attention by introducing a new product or service.
- Keep up with your social media presence. Ensure that you are keeping up with new social media channels, like Tik Tok. Being aware of what’s new and hot should be part of every company’s social media strategy. Tik Tok’s popularity has been soaring in recent months and those brands that have been clever about monetizing that traffic have seen incredible impact on revenue and new customer acquisition.
Most importantly, always remember that being proactive is usually more cost effective than being reactive. This is true in regard to your fraud prevention as well as to your marketing. Don’t let your brand be forgotten in the off season. Stay vocal, stay current, and stay true to your brand. Happy off-season to you!