Retailers understandably want to create strict returns policies to reduce instances of fraudulent or abusive claims. At the same time, a rigid strategy like “no receipt, no returns” can sour loyal customers as well as drive fraudsters toward new criminal tactics, forcing loss prevention teams to continually change strategies.
Case in point, retailers with a “no receipt, no returns” policy might begin to see more attempts at fraudsters using counterfeit receipts, causing loss prevention practitioners to find new ways to identify counterfeit fraud and train associates accordingly. In effect, the policy, combined with the rise in fraud, could end up creating more challenges for a retailer.
No doubt companies are in a difficult position; however, they can ease the tension by relying on the assistance of retail analytics. The insights and retail intelligence provide flexibility and consistency to how retailers manage their online and in-store returns processes.
New Data Highlights the Significant Challenge of Retail Returns
Retail returns will always come at a cost for retailers. In fact, in 2024, total returns for the industry added up to $685 billion in merchandise, according to a new study from Deloitte and Appriss Retail. The data is generated from actual returns processed online and in-store at 60 of the top 100 U.S. retailers.
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Of that total loss from returns, the study also uncovered that more than 15% of the returns were impacted by fraudulent and abusive returns claims, totaling $103 billion. Nearly 85% of the 150 retail executives surveyed in the report said they changed returns policies to adjust for fraud.
The two leading types of returns fraud that the retail executives said they faced include:
- Wardrobing (60%)
- Gift card fraud (55%)
But nearly half of the surveyed executives said they encountered returns made with counterfeit receipts. With a high number of retailers changing returns policies, including harsher, stricter policies, counterfeit receipts and new tactics may emerge.
Emerging Tactics in Returns Fraud and Abuse
Retailers are strengthening their defenses against fraud and abuse; however, fraudsters and organized retail crime (ORC) rings find new ways to adapt. Consider counterfeit receipts, where criminals are using advanced digital software, AI, and photo tools to create fake receipts that look like the real thing. From the font on the receipt to how the information is presented to the paper it’s printed on, the receipt looks like a carbon copy to present to an associate in stores. Similarly, clever criminals recreate email order confirmation messages and receipts to use during an online return.
ORC groups also generate fake returns in bulk, creating fake names, addresses and email addresses to apply to counterfeit receipts to be used at multiple locations. Criminals also use stolen credit card data to place real orders. Then, when returning the items, they use a fake ID associated with the return to get a refund, gift card or store credit.
Lastly, fraud as a service is a dangerous trend, where fraudsters sell their tips, tricks and tools to help others steal from retailers. The services are sold on dark web forums, Discord, WhatsApp and Telegram, and often use cryptocurrencies, which makes them harder to track. These methods are examples of retail criminals going to great lengths to steal from retailers, causing loss prevention and security teams to find new solutions to fight back.
Retail Analytics Provide a Flexible Approach to Retail Returns
While retail crime gets more advanced, retailers must resist the urge to get stricter with their returns policies. Instead, relying on data-driven guidance and retail analytics can support retailers to be more flexible and even provide a personalized approach to returns.
For example, if a consumer comes to the returns counter in-store to return an expensive OLED TV, retail analytics and AI assess the consumer’s transaction history behind the scenes. The associate receives a recommendation to approve the return, approve with a warning, or to deny it — based on the data. This allows for a seamless process where potential fraud can be flagged without requiring excessive questioning, while loyal customers with a strong purchase history can enjoy a smooth, hassle-free returns experience.
Through the use of retail analytics, associates are provided with agile, flexible and protective support during the entire returns experience. This intelligence helps provide an anonymized look at each transaction and find questionable returns.
Loss Prevention Teams Should Prepare for What’s to Come
The recent returns study from Appriss Retail and Deloitte found that 55% of surveyed consumers said they wouldn’t buy from a retailer with a restrictive returns policy. In fact, nearly a third said they stopped shopping at a retailer entirely following a negative returns experience.
Retailers need to be smart and flexible in how they approach returns. Retail analytics can provide that balance. A data-driven approach also helps retailers keep an eye on new waves of fraudulent practices by focusing on transaction history and analytics.
ORC groups and bad actors can continue trying new tricks to throw off associates or undermine the online returns processes. But the power of analytics can protect retailers by spotting suspicious consumers and transactions, while rewarding the valuable shoppers with a frictionless, personalized returns experience.
Pete Barker is the Director of Product at Appriss Retail. Previously he spent nearly 12 years at Dick’s Sporting Goods where he stood up the Digital Loss Prevention department and team from scratch, and he has been a long-time retail loss prevention practitioner.
