Manage Returns for Fraud Control, Sustainability, and the Bottom Line

3/27/2023
Returns

Returns are expensive, vulnerable to a variety of fraud schemes, and often bad for the environment. They’re also a necessity for companies that want to keep customers happy. That fact is one of the apparent conflicts between the ideal return scenario and the reality — for customers, business owners, and the environment. 

Customers expect convenience, especially when it comes to returning purchases. A 2022 survey found that 53% of U.S. consumers prefer to make returns online, and 40% expect mail-in returns to be free. They also want to shop sustainably: 78% of global customers say companies’ environmental practices influence their buying decisions. However, return logistics increases the transportation carbon footprint of online purchases, and many returned items end up in landfills when they can’t be recycled or resold. 

Meanwhile, retailers and brands that want to meet sustainability goals and control costs are taking a closer look at their return policies and practices to reduce environmental impact and the cost of handling returns. Complicating matters further are fraud schemes that exploit the return process, leading to extra losses for businesses. Of the $816 billion worth of merchandise that U.S. consumers returned in 2022, 16.5% was fraud

Retailers have some options for navigating the returns obstacle course in a way that satisfies customers, thwarts fraudsters, and reduces costs and environmental impact. These options focus on shrinking the number of items returned, adding technology to return fraud prevention strategies, and finding more efficient ways to handle the remaining returns. 

Reduce Return Volume

Preventing as many returns as possible can reduce costs and environmental impact. There are several strategies that can reduce the need for returns, starting with accurate, detailed product information. 

Find ways to reduce bracketing. Bracketing is the online version of taking several sizes or colors of the same item to the fitting room, except that with bracketing, the unwanted items are returned instead of hung on the return rack. Sixty-three percent of online shoppers say they bracket their purchases sometimes, and 15% consider bracketing a regular shopping strategy. 

What can break the bracketing habit? Avatars that show what items will look like on the shopper and size recommendations based on past purchases can reduce the need to buy multiple items to try on at home. For customers in good standing who need to return inexpensive items, it may be more cost effective to let them keep the item and refund their purchase — as long as they don’t make it a habit. 

Another way to prevent or slow down bracketing returns is to stop making returns free. This is a risky strategy, because 60% of U.S. consumers “will reconsider purchasing from a store or company that charges for mailed returns.” However, retailers including Zara, Kohl’s, and H&M have started charging return fees to offset costs. 

Of course, bracketing isn’t the only reason shoppers return items. AI analysis of returns can identify specific products that are returned most often because they’re damaged or defective. Such items can be discontinued to reduce costs and environmental impact. 

Prevent Return Fraud

AI analysis of products, orders, and customer histories can also help to sort legitimate returns from fraud attempts. This approach can help to identify serial returners who are committing friendly fraud, products that are likely to be targeted by organized return fraud rings, and transactions whose original data doesn’t sort legitimate returns from fraud attempts or match the return documentation presented online or in the store.

Spotting those mismatches can help reduce BORIS (buy online, return in store) fraud. Scammers sometimes create fake receipts to return stolen merchandise for cash, and it can be virtually impossible for a cashier to tell that the receipt is fake. Other ways to reduce BORIS fraud include requiring a photo ID and only issuing refunds to the card used in the original purchase or to a store gift card.

One widespread type of friendly fraud–wardrobing may require some extra hardware. Half of retailers said they were hit by wardrobing fraud in 2022. It happens when customers buy an item, wear or use it, and then return it, in effect treating the store as an unwilling rental service. A combination of large, conspicuous, tamper-evident tags and a return policy requiring those tags to be in place can deter wardrobers and prevent product waste. 

Adopt New Strategies for Managing Returns

Returnless refunds are one way to reduce the carbon footprint of returned items. For items that are too expensive for the returnless approach, a return bar can minimize the cost and impact. These physical stores, which “pack and ship returns for partnering retailers,” can ship returned goods in bulk to cut down on carbon emissions and reduce processing costs by more than 20%.

Once those items are returned, there’s the question of what to do with them. Some retailers partner with third-party service providers that manage the donation of their returned goods to nonprofit organizations. This generates a tax deduction for the retailer while benefiting the community and keeping products out of landfills. 

Retailers that have the resources to set up resale processes for gently used items can earn loyalty from price-sensitive customers who value sustainability. Brands from Levi’s to Rolex now have resale programs, allowing them to control their brand experience while reducing waste and recovering some return costs. 

It’s unlikely that returns will ever go away completely. People change their mind, make the occasional mistake when ordering, or find that their purchase really did arrive damaged or not as described. Retailers who take steps now to reduce their total number of returns, weed out return fraud, and optimize necessary returns can keep customers happy while operating more sustainably and controlling return costs. 

— Bruno Farinelli, Senior Director of Operations and Analytics, ClearSale

About the Author

Bruno Farinelli

Farinelli is an expert in biometrics and browsing behavior and serves as senior director of operations and analytics at ClearSale. Farinelli holds a Bachelor's degree in statistics from top Brazilian University UNICAMP and an MBA in business intelligence from one of the most well-known technology institutes in Latin America FIAP.
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