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Retail return fraud: How to protect your business from fraudulent returns

Woman packages up item for return shipment

Fraudulent returns are a serious concern for retailers. In a recent study, Appriss Retail estimated that out of the $351 billion worth of returned goods in 2017, around $17.6 billion worth of goods were returned fraudulently. So, it’s becoming more and more important for retailers to tighten up their return policy and implement e-commerce fraud prevention strategies.

The retail return fraud landscape

There are a variety of ways customers fraudulently return products to retailers. Within the retail world, wardrobing is a significant problem. This describes when customers purchase garments, wear them once or twice and send them back to the retailer for a refund or credit. “They’re trying to rent the dress for free,” explains Jim Brill, Marketing Manager for Returns and Reverse Logistics at UPS.

Customer returns of stolen merchandise can also be an issue, wherein thieves will fraudulently return products which were stolen from the retailer. E-commerce returns fraud can also happen on secondary markets. Fraudsters purchase reduced or liquidated goods from a secondary market source or discount store then attempt to make a return with the original retailer. “They’ll purchase the goods for pennies or dimes on the dollar and then turn around and try to extract a refund for full retail value,” says Brill.

The high-tech sector can be hit with e-commerce returns fraud in specific scenarios. For example, many cell phone service providers offer programs where customers can trade in old phones for upgrades. Instead of shipping in the old phone, scammers may send in a box with a random object instead of the phone they are trading in. The company takes a financial hit when they can’t resell their own phones on secondary markets and also expend additional funds trying to track down the customer to recover the correct merchandise.

Strategies for protecting your business against e-commerce fraud

Getting ahead of retail return fraud could potentially amount to millions of dollars in saved revenue. Plus, with businesses all over tightening up their controls around e-commerce fraud you don’t want to get left behind. These steps can make it easier to stop fraudulent product returns:

  1. Monitor inventory and return levels

According to Brill, “Data is the key to understanding what was sent out and how that matches up with what was returned.” By monitoring inventory and return levels across product groups, retailers can identify inventory shrinkage and have a better chance of spotting fraudulent customer returns. It’s also critical that a merchant’s return function communicates with front-end order management and forward logistics groups to know what should have been returned. UPS has several solutions around this area. UPS Returns® Manager is a platform that allows shippers to ask for their clients to provide information about the returning goods, why it’s coming back and what issues are causing the return; which provides visibility into their inbound merchandise. There are also UPS Ready® providers available to help retailers better understand their inventory and provide inbound returns visibility.

  1. Create an air-tight return policy

Building a strong and consistent return policy is one of the best ways to reduce your exposure to e-commerce returns fraud. When you create a return policy, ensure that you are explicit about time frames for returns, whether original packaging is required, and whether any specific documents need to be included. But it’s also important to balance a return policy that protects your company, with your customer’s desire for flexible returns. According to research from Optoro, Inc., 55 percent of customers have decided not to buy an item solely because the return policy wasn’t flexible enough. “It’s about ensuring customers aren’t confused by your return policy. Make sure it’s thorough, consumer friendly and not full of hyper-legal language, and it provides specific information about your stance on returned goods, process and refunds. The customer wants to know the policy is in their best interest,” Brill says. 

  1. In some cases, drive customers back to the retail store

Another way to prevent e-commerce fraud is to have customers physically visit a brick-and-mortar store as part of the return process, when available. “Rather than shipping the product back, the customer would present the item to a person who can check in the goods,” explains Brill. When the customer returns their product, the store associate can use the inventory management system to verify a pre-authorized return. Offering store credit or exchanges, rather than cash returns, may also help to reduce incidents of e-commerce returns fraud.

The UPS Store® goes even further to help retailers deal with their returns intake. “For larger engagements, we can provide a verification of the returned item,” explains Brill. The UPS Store employees can examine goods, verify model numbers or serial numbers, and re-pack products using the correct packing procedure. That means retailers can flag or ward off fraudulent returns immediately, rather than after a product has been shipped back to the warehouse.

  1. Utilize UPS Returns Manager and UPS Returns Exchange

UPS has numerous tools that can help reduce vulnerability to product return fraud. UPS Returns Manager allows you to have the consumer create their pre-paid returns labels and collect information from them at the same time, which can help to avoid e-commerce fraud. Before the package is shipped, the platform can be programmed to ask for up-front information on the product, package weight and reasons for return, allowing the customer to react as soon as the package comes back to them.

UPS Returns Exchange helps facilitate product exchanges by allowing the driver to exchange goods right on the customer’s doorstep. Explains Brill, “If you need to exchange a broken tablet device which is under warranty, the driver will deliver the replacement device, conduct an unpack and repack of the exchange goods, and then scan the return label and deliver it back to the retailer. This is called a like-for-like exchange.” It’s a great way of helping to reduce fraudulent returns.

Conclusion

Product return fraud can happen to anyone, whether you’re a tiny mom-and-pop shop or a global brand. And that’s why every retailer needs to take the threat seriously. Absorbing the losses is unsustainable, and if you’re not careful, could place a target on your company’s back. E-commerce fraud prevention strategies can help make your business stronger and more streamlined than ever.

Find out more about how UPS can help reduce retail return fraud with UPS Returns Solutions.

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