Returns are daunting for all e-commerce businesses, particularly those in the fashion industry, where 30% return rates are commonplace. Moreover, the industry is taking notice of the proliferation of fraudulent returns, particularly in the category of first-party fraud.
A 2022 report by the National Retail Federation and Appriss Retail estimates that of the approximately $212 billion worth of returned online purchases, around $22.8 billion, or 10.7%, are likely to be fraudulent. Types of return fraud include wardrobing, returning stolen or used items, and using counterfeit receipts, among other practices.
Online retailers face additional expenses in the form of time and money when they process fraudulently returned items, restock them, re-evaluate their worth, and determine how or if they can be resold. This can negatively impact sales, gross margins, inventory management, and profitability.
An increasingly prevalent form of first-party fraud, a situation where the person committing the scam is the same person who made the purchase and is returning the item, is wardrobing. With Appriss reporting 50% of retailers experienced wardrobing  in 2022, it is no wonder "return of used goods" tops retailers' most significant challenges.
Wardrobing is a form of return fraud carried out by genuine customers who purchase wearable or usable items with the plan of returning them once they have been briefly used. As it relates to the fashion industry, this typically involves a shopper who buys, wears, and then returns clothing, shoes, and accessories.
The term wardrobing derives from borrowing clothing or costumes from a wardrobe, using them once, and returning them. The term "wardrobe" refers to a collection of clothing, shoes and accessories and "wardrobing" is a play on the word that refers to the practice of temporarily using these items before returning them.
Wardrobing, a fraudulent practice, is a misuse of the concept of buying and returning, as it involves returning merchandise with the explicit intention of getting a full refund from the business while using the item at no cost. The rise of e-commerce has made wardrobing even easier as customers benefit from the anonymity of online shopping and can now return used apparel without any face-to-face interaction with retail staff.
Unfortunately, wardrobing is becoming increasingly popular among consumers who deliberately abuse forgiving return policies, with a recent study finding that one in four shoppers  admit to engaging in this practice.
It is essential to explore potential motivations to comprehend why individuals, who do not match the typical shoplifter profile, return used or worn merchandise to e-commerce businesses. By doing so, e-tailers can better understand the underlying reasons behind such behavior and develop effective strategies to combat it.
As the prevalence of wardrobing increases, it is at risk of becoming normalized and socially acceptable as shoppers share stories of their experiences and how effortless it was to carry out.
Here are some common scenarios that lead to the practice of wardrobing:
The rationale behind returning worn or used merchandise may be attributed to events such as weddings, cocktail parties, galas, proms, and even job interviews. The social pressure to wear something new is a significant motivating factor and a justification for wardrobing.
The false reality of social media leads to a pervasive sense of social pressure to emulate the fashion choices of influencers. As a result, people may feel reluctant to be seen wearing the same outfit more than once, which for most is not financially viable. To keep up appearances, unscrupulous consumers resort to fraudulent practices like wardrobing clothing, shoes, and accessories from online retailers.
A common explanation for the wardrobing phenomenon is the power of social media on individuals, particularly social media influencers and those aspiring to become influencers. The pressure to maintain an online image and status can be so intense that these individuals are willing to engage in return fraud repeatedly.
The trend of "snap-and-send-back" is driven partly by the desire to post fashionable #OOTD outfits on social media. Influencers, in particular, feel pressure to constantly maintain their status by showcasing trendy looks to their followers, leading them to engage in fraudulent behavior by only wearing items once for a photo opportunity and then returning them. Wearing something twice is considered taboo in their world, which creates a significant problem for online retailers as they process used merchandise.
In a recent return policy abuse webinar hosted by Forter, they shared a shocking incident highlighting the gross exploitation of a merchant's return policy. They reported on the case of a fashion blogger who bought current season merchandise, blogged about her creative looks, and then returned 85% of the outfits to the merchant within the return period for a full refund.
Consumer behavior and purchasing habits have been forever altered by several years of economic prosperity, driven by pandemic and government economic interventions, including stimulus checks, PPP loans, low-interest rates, and extended unemployment benefits.
However, given the current economic environment, it is typically not feasible for most people to buy new outfits every day, especially designer-made brands and accessories that can run between a few hundred and a few thousand dollars per item. For many, this kind of expenditure is not viable or practical, particularly in the context of other financial obligations and limited budgets. Wardrobing is a way for some individuals to maintain appearances without constantly buying new clothing, particularly during economic downturns.
The feeling of regret or guilt after a purchase is commonly known as "buyer's remorse." In some cases, consumers may experience this feeling after using or wearing an item that did not meet their expectations. This can lead the buyer to justify their return, despite the item being used. Social media can amplify this feeling, especially if they do not receive the anticipated positive feedback from followers.
"Friendly fraud" is a term used to describe a type of return fraud where a consumer intentionally abuses a retailer's return policy by returning items that they have used or do not intend to keep. The term "friendly" refers to the fact that the consumer may not view their actions as fraudulent or harmful and may rationalize their behavior as an innocuous or justifiable act.
They may find pleasure in the excitement of committing the act without getting caught, viewing it as a personal thrill. They may also argue that their behavior is harmless since they return the merchandise. However, this type of fraud can result in significant losses for e-tailers and ultimately harm all consumers by driving up prices.
E-commerce businesses can detect a case of wardrobing through various methods, such as:
Wardrobing may appear to some shoppers as a victimless crime that provides a way to innocently recoup their cash as the seller receives their merchandise back. However, this perspective overlooks the harm it can cause online retailers and the costs they incur from wardrobing return fraud.
Imagine the scenario of an honest customer who is expecting to receive a new item but instead gets a previously used item. At a minimum, they will be disappointed and lose faith in the business, resulting in a loss of customer loyalty and an increase in negative reviews. It is well known that dissatisfied customers are more likely to spread the word and share their experience with others, which in turn can harm the business's reputation and cause a loss of their customer base.
To identify if returned items have been worn, e-commerce businesses may need to allocate additional resources for more rigorous inspections, which can increase overall labor costs related to hiring and training staff.
Furthermore, additional resources are required to thoroughly inspect returned items before being returned to inventory to determine if they can be resold at full price or must be discounted, disposed of, or liquidated.
E-commerce businesses that experience return fraud suffer various financial consequences. These may include lost revenue from returned used inventory, increased costs from processing fees and labor expenses, reduced profits due to markdowns and lower margins, and the need for additional capital to fund the replacement of merchandise.
According to Optoro, the cost of returning a $50 sweater is estimated to be $33, or 66% of the purchase price. These numbers highlight fraudulent returns as a significant challenge to the financial health of online retailers, particularly for small, family-owned businesses or e-commerce startups.
E-commerce businesses face significant inventory management and restocking challenges due to wardrobing. Identifying a previously used item during returns processing is only the beginning, as the item cannot be resold as new and must be discounted, disposed of, or sent to liquidators. This creates a ripple effect of out-of-stock notifications for honest customers.
Although sustainability is a growing concern among consumers, the practice of wardrobing undermines these efforts. Not only does it cause inventory and financial challenges for e-commerce businesses, but in the United States, it is estimated that around 5 billion pounds of returned merchandise end up in landfills annually. Ironically, while consumers increasingly demand sustainable practices, wardrobing's environmental impact is at odds with this trend.
In essence, return policies exist on good-faith principles, where buyers and sellers behave ethically within clearly defined boundaries. Unfortunately, more customers are abusing lenient return policies for their own gain. Businesses that understand the delicate balance between generous return policies and a hard-line stance against return policy abuse can implement effective prevention strategies.
Taking a multi-faceted approach to prevent wardrobing fraud can assist online retailers in minimizing its impact and establishing best practices for their staff. Those include:
E-commerce businesses can no longer ignore the global phenomenon of wardrobing, which is at risk of becoming a normalized practice due to increased economic pressures. To prevent fraudulent returns while retaining loyal customers, online retailers must adopt methodical processes to discourage and detect wardrobing without alienating honest consumers. In addition, companies can discourage wardrobing by leveraging the power of reference groups and conveying that this practice is socially unacceptable.
The e-commerce community must ensure that wardrobing never becomes fashionable.