Rising Returns Rates Leave Retailers Vulnerable to Rampant Fraud
April 13, 2022
It’s no secret that retailers struggle with reverse logistics management.
However, today’s unprecedented supply-chain issues, historic returns rates,
a rise in fraud
have amplified the crisis. One problem is that shopping behaviors have
completely shifted since Covid. Yet, most retailers maintain pre-pandemic
return policies that aim to keep customers happy without factoring in a
radically different environment. Despite these challenges, retailers have
significant opportunities to reimagine returns management through better
policies, targeted software, and partnerships with third-party returns
Returns in the age of supply chain labor shortages
Returns were on the rise for years, even before the pandemic, due to a
steady increase in online shopping, which yields a higher return rate than
in-store purchases. Approximately
30% of all online orders are returned
compared to 8.89% in brick-and-mortar stores.
As a result, transportation companies have been overwhelmed by the need to
pick up small parcel return packages and ship them around the country,
often slowed by inefficient routes requiring multiple stops before arriving
at their final destination. To compound the issue,
fleet drivers are at an all-time low
, forcing shippers to spend more while struggling to keep up with the
demand. According to the American Trucking Association (ATA), the situation
will continue to worsen, and by 2030, the ATA expects to be short 160,000
Despite fewer drivers to manage increasing orders, e-commerce spending
continues to climb. In 2022 alone, experts predict online sales to grow by 16.1%, reaching $1.06 trillion.
Driver shortages and ineffective reverse shipping routes combined with
escalating online returns mean consumers will have to wait longer to
receive refunds. At the same time, retailers will have to pay higher
processing costs for the foreseeable future.
Fortunately, retailers can start making meaningful changes now:
● Cut costs by optimizing shipping and warehousing operations
● Reduce the number and cost of returns through better policies and
Turning operational pitfalls into partnership opportunities
Every retailer should strive to reduce returns, but they must also consider
reducing costly operational inefficiencies related to processing, shipping,
and reselling unwanted items.
Yet, from our experience, most reverse operations have remained stagnant
with only slight improvements over the years. The reason is simple and
understandable – retailers focus their resources on increasing forward
sales and customer retention. That’s why many are seeking support from
third-party providers with the experience and capacity to solve their
expensive returns problem.
Returns management providers vary significantly in their approach,
infrastructure, and software capabilities, but the best ones will share
essential characteristics like:
● Integrated software to determine the most efficient disposition strategy
and resale path for every unwanted item.
● A reverse supply chain network of strategically-placed processing
facilities, close to distribution centers and stores, to ensure products
are routed efficiently leading to reduced transportation costs and
● Skilled workforce to conduct value-add services to restore items to most
saleable condition to increase recovery potential.
● Solid partnerships with transportation companies to negotiate reduced
fees and optimize savings through fewer shipments.
Reducing returns through better policies and service
The best way to reduce returns is by preventing them in the first place. In
an increasingly digital environment, that means giving shoppers the tools
they need to confidently make the right purchase the first time–even if
they can’t physically touch, see, or try on the item. The latest augmented
reality and 3D technology aim to do just that. For example, online brand,
reduced its return rate to 3%
after implementing virtual fitting-room technology onto its platform.
Retailers can also reduce returns by shortening returns acceptance windows
to 30 days or less. Customers say they prefer at least 90 days to return a
holiday purchase, but
they also told
goTRG that length of return windows
are not their primary concern when making purchase decisions. That’s
excellent news because the longer it takes to return an item, the more
value it loses when the retailer finally receives it. Retailers today can
garner higher resale prices by rethinking their 60- 90-day return policies.
that 39% of retailers have already adjusted to 30-day policies. Some, like
The RealReal, have cut returns eligibility to just 14 days.
Scammers exploit eCommerce growth
Fraud is another consequence of the rise in online shopping and flexible
returns policies. Specifically, many online retailers said they saw a surge
claiming they never received their order
. According to recent reports, retailers lost 10.6%—or a
whopping $23.2 billion
—of overall returns to fraud over the 2021 holiday season. With shipping,
inspection, and disposal costs factored in, the total loss is estimated to
be closer to
Retailers that incorporate deliberate return policies and fraud monitoring
technology can prevent themselves from falling victim to this new wave of
scams in the future.
Revising returns policies to reduce fraud
Return policies can be powerful tools in mitigating fraud. Policies with
lenient terms, such as those that don’t require ID or the original purchase
form (i.e. - a receipt), will inherently attract scam artists. Some
expert tips we recently shared
from our in-house Director of Safety and Security include:
● All returns should come with a receipt, ID, and matching payment method.
● The item must be inspected and have all tags intact.
● Retailers should only process returns using the original form of payment.
● Customers should be monitored to ensure that they do not engage in
excessive returns, and if they do, their purchases should be restricted.
The powers of technology to eliminate fraud
Now more than ever, retailers are investing in
to defend against predatory shoppers. In fact, more than 50% have indicated
that they are allocating additional capital and staffing resources to loss
Fraud monitoring software can flag suspicious activity and accounts and
even locate scammers via IP addresses. It can also block fraudulent
accounts from future purchases and even recommend actions that businesses
can take to protect themselves—all in real-time—based on monitoring
Retailers can also invest in identification software to further minimize
fraud. Identification software verifies customers’ information at the point
of purchase, such as billing and shipping details. Then, during the
checkout process, the software will recognize inconsistencies and provide
“red-flag” alerts via advanced POS systems.
The bottom line
The spike in online sales activity can be an exciting boon for retailers
but can also create vulnerabilities for businesses who are not actively
keeping an eye on fraud trends in an ever changing retail climate. Those
who take action to mitigate exposure, enforce better returns policies, and
invest in technology to identify abusive behaviors will continue to endure
and be successful.
Learn more about goTRG: https://www.gotrg.com/