Warning: Return Fraud is Hurting Retailers! (Here’s How to Combat It)

Bad news, retailers – your customers are probably cheating you.  As the technology to help you run your shop is improving every day, technology that assists people to defraud companies is doing the same. A growing concern in the retail sector is ‘return fraud’.

What is Return Fraud?

Return fraud occurs when someone abuses a company’s return policy to obtain money/products illegally.  Most statistics show that around 5-10% of retail sales are lost due to it.   We’ve all heard of that person who buys something, uses it once for a special occasion (a wedding for instance), then returns it, tags attached. That person is engaging in return fraud:

Return Fraud covers some different scenarios:

·         Wardrobing or ‘renting’- this is when a customer buys an item and uses it for a short time (with tags still attached), then returns it claiming it is unused. While this is rarely punishable, because it is difficult to prove, it is an extremely prevalent practise resulting in less sales, faulty stock and time wasted.

·         Returning stolen merchandise: – This occurs at stores with lax security. It is when someone shoplifts a product and returns it for a full price refund, including GST. The store is typically one that doesn’t require a receipt.

·         Receipt fraud: If a store refuses to refund without a receipt there are some persistent fraudsters who use online scamming tools to duplicate or falsify receipts. They then return items they have either shoplifted or purchased for less than full price to receive a full RRP refund.

·         Employee fraud: Unfortunately, employees sometimes aid this fraud – particularly to assist an acquaintance. It’s not hard for a sympathetic shop assistant to match an item being returned to a receipt in the system, if the customer has not provided one.

·         Switch fraud: this is when a customer purchases a working item. They then use the new receipt to return a defective identical item that they already owned – claiming it to be the just-purchased item.

·         Cross-retailer return: Purchasing an item from a retailer (usually at a discount) then returning or exchanging the identical item at another retailer, where it commands a higher price.

How Does This Happen?

With the pressures, a boutique retailer is under these days in terms of pricing and service competitiveness, returns policies have become another competition point.  In making it easy for customers to return items, retailers believe they will attract higher sales and good word-of-mouth recommendations.

However, fraudsters will prey upon a company that is known for its relaxed return policies. Somewhere a fine line exists – the line between accommodating genuine customer returns, and accommodating people who cheat the system.

How to Combat Return Fraud

  • Consider a CRM system to track customer purchases.
  • Record the name of people who return items. Some companies even request photo id for a return.
  • Publish your policies, both in any advertising you do and in signage in store. It’s not pretty but it is essential.
  • Apex Display has a restocking fee for change of mind returns – 20% of the original sale price. Why not implement this idea in your shop as well?
  • Many shops refuse to refund or exchange on sale items because they are aware of the problem of returns. Ensure your sale item policies are very clear, as these are the highest risk items.
  • A shorter returns period will mean that items are less likely to be returned damaged.
  • Visible security in-store can deter would-be criminals.

Don’t despair – there are many methods of combating return frauds and as has been said by the owner of a massive US brand: Every great business is built on friendship. (JC Penney). Your friend won’t be inclined to steal from you…. so focus on building relationships with your customers based on trust. 

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