According to a recent report from Loop, nearly two-thirds of Australian retailers (60 per cent) have experienced some type of returns fraud or policy abuse in the past 12 months. Indeed, Loop estimates that for every $100 in returned merchandise, retailers lose $10.40 to returns fraud.
Nearly three-quarters (74 per cent) of Australian retailers say their company prioritises customer experience over fraud and abuse prevention, and 51 per cent indicated that ‘maintaining a good customer experience’ was the top challenge their company faces when addressing returns fraud or policy abuse.
What can retailers do to reduce returns fraud?
Invest in real-time inventory
Fraudulent returns can compromise the accuracy of inventory data, as items are often returned in unsellable condition or not returned at all. This lack of accuracy can disrupt the supply chain and hinder retailers’ ability to fulfill customer commitments, leading to discrepancies in stock levels that can result in stockouts or excessive inventory, both of which incur significant costs for retailers.
Real-time inventory management enables retailers to maintain precise stock levels by incorporating up-to-date data on returns. By monitoring returned products at every stage of the reverse logistics process, retailers can ensure that only sellable items are restocked. Effective inventory management can minimise the financial repercussions of fraudulent returns on the supply chain.
Introduce return fees
New Australian data from Shippit and Fluent Commerce shows that while nearly half of all retailers offered free returns six years ago, less than 20 per cent do so now — with the number expected to continue to drop steeply.
Retailers can discourage casual or fraudulent returns by implementing return fees for non-defective items. This strategy needs to be carefully managed to prevent alienating high value customers. However, it can substantially decrease the number of returns, alleviating the strain on reverse logistics and the supply chain.
Another option is to introduce in your Order Management System (OMS), two categories of customers. ‘Verified’ ones with a low returns rate who can still access free returns. And a second group for new customers or customers who have a higher returns rate. They will then only be given the option to return at a fee. That way you don’t alienate your best customers but discourage the repeat offenders.
Speed up the reverse logistics
If a retailer can make it easier to return items, that can overcome the disappointment customers may feel for paying for returns. Allowing people to return in store, enabling staff onsite to quality check and then put the items back into sellable inventory right away (rather than heading back to the warehouse), retailers will be able to sell those items again quickly. Indeed, many customers who return in-store end up exchanging rather than returning, finding something else to buy. It’s also much harder to return a ‘fraudulent’ item in store than via mail.
Implement stricter verification processes
Returns fraud can also be reduced by introducing stricter verification procedures at the point of return. Retailers can track a product’s lifecycle using technologies like AI-drive analytics and blockchain, to ensure that returned items correspond with the original purchase. By identifying irregularities in return patters, these tools can help flag potential fraudsters. This aids retailers in decreasing the number of fraudulent returns entering the reverse logistics process.
Choose third party partners wisely
Retailers can collaborate with third-party logistics providers to mitigate returns fraud. Providers specialising in reverse logistics should have the infrastructure to efficiently manage returns, reducing the operational disruptions associated with fraud. Experts on reverse logistics, these providers can also offer valuable insight into return trends. Armed with their strategic counsel, retailers can fine-tune their approach to returns fraud – reducing the impact on the supply chain.
There is no silver bullet to reducing returns fraud, but if retailers use a mix of the above and explain their return policies (and costs) clearly with customers, then they can reduce the likelihood of abuse.
Jamie Cairns is chief strategy officer at Fluent Commerce.