RLA News & Views

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, and 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 providers.

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 drivers.

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 customer service.

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 turnaround time.

● 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, Otero Menswear, 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. Navar reports 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 in customers 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 $43 billion .

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 fraud-prevention technology to defend against predatory shoppers. In fact, more than 50% have indicated that they are allocating additional capital and staffing resources to loss prevention.

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 customer behaviors.

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/