The ongoing pandemic and artificially stimulated economy, driven by stimulus checks, PPP loans, low interest rates and extended unemployment benefits, have wreaked havoc on consumer behavior and buying patterns. Spending has been diverted from brick-and-mortar shops to online retailers, causing a seismic surge in ecommerce activity and new users of digital payments. However, as stimulus benefits wane and economic uncertainties like inflation emerge, consumers are reassessing their spending.
Ironically, alongside the impulse to scale back is an overwhelming desire by consumers to “return to normal,” the sentiment feeding a social revival of proms, graduation parties, extended family gatherings and corporate retreats. The strange combination of wanting to save money and a carpe diem attitude is creating an interesting phenomenon, but it’s also driving an illicit trend — wardrobing fraud.
The Role of Wardrobing Fraud in Retail
Wardrobing fraud is a tactic that involves purchasing articles of clothing with the intention of wearing it once and then returning it. With COVID-19 restrictions at ease, the re-emergence of social events like weddings, of which 2.6 million are expected to take place in 2022, are fueling the wardrobing fraud trend. Consumers are likely to target bridal shops and upscale eveningwear brands to buy, wear and return items that typically sport a steep price tag and are only needed for a single occasion, such as gowns and tuxedos. However, less exclusive shops also are seeing a rise in wardrobing fraud.
Moreover, amidst the growing influence of fashion bloggers, hashtags like #snapandsendback and #wardrobing have gone viral across social media. The problem has grown so prevalent that companies like ASOS are tracking social media accounts to mitigate wardrobing fraud and ban serial returners.
Why Fraud Influences Bottom-Line Retail Results
Wardrobing fraud is one instance of fraud in action that’s particularly affecting retailers’ ecommerce operations as consumers eye cost-cutting strategies. The anonymity and ease of deception that is present in the online shopping world tempts not only experienced criminals to commit fraud, but also consumers who are under the stress of financial pressures. As a result, these individuals are tempted to bend their ethics, resulting in increased levels of customer abuse, which is known as friendly fraud.
A recent uptick in friendly fraud threatens overall customer relationships as retailers become wary of falling victim to customer abuse and implement practices that affect all customers, not just abusive ones.
Friendly fraud is challenging to prevent as the customer is the legitimate cardholder and their less-than-noble intentions are not immediately known. The fraud occurs post-transaction in the form of a fraudulent chargeback, return policy abuse or wardrobing fraud. These fraudulent efforts are ultimately having an adverse effect on bottom-line business results, as a survey by the National Retail Federation found that in 2020, U.S. merchants lost over $25.3B to friendly fraud.
Additionally, research has found that 17% of all chargebacks were due to instances of friendly fraud. Customers are placing orders and then initiating chargebacks, claiming that the order was fraudulent in an attempt to keep the merchandise for free. Some customers may also opt to initiate a fraudulent chargeback instead of returning an unwanted item.
How Technology and Customer Experience Provide a Solution
For retailers to protect their ecommerce operations from instances of both wardrobing and friendly fraud, advanced tools and revamped customer service initiatives may be key to combating the problem. For example, enforcing effective return policies, utilizing clever labeling such as the 360 ID Tag and putting repeat offenders on a ‘Block List’ are great ways of mitigating fraud losses. Additionally, tools like machine learning technology can further help solidify legitimate ecommerce transactions by tracking thousands of data points per order, providing predictive analytics and revealing customer behaviors across a broad network of retailers.
Yet it’s also important for retailers to leverage a human touch in mitigating instances of fraud, which can be achieved through customer service teams. There is a significant opportunity for these teams to become more involved in getting to know customer profiles and implementing preventative measures when something appears to be a fraudulent chargeback claim.
Having customer service representatives easily accessible to both customers and other logistical players on internal retail teams is critical, as shoppers often claim that their inability to reach the merchant led them to conclude that the company was a sham and prompted the dispute of the charge.
As social and economic pressures weigh on consumers, the damaging combination of prudent spending and increased fraud can really hurt ecommerce retailers. To reduce revenue losses and increase ROI, retailers should be cognizant of spotting and preventing instances of fraud or abuse by legitimate customers.
Isaac Gurary is the CEO and Co-founder of NoFraud, a leading solution for real-time fraud protection, empowering businesses to confidently expand their sales reach while reducing risk, false positives, and most importantly, increasing profits. Gurary is passionate about leveraging fraud prevention to improve ecommerce for merchants and consumers alike. At NoFraud, he spearheaded development of innovative systems to eliminate friction to retailers and shoppers, including a dynamic checkout solution that greatly improves customer experiences and increases conversions. Gurary is invested in improving the bottom line of every NoFraud customer and takes great interest in their success.