As a merchant, it’s important to offer a generous returns policy that gives customers a chance to see if your product is the right fit for them.

The cost of processing and refunding returns is a normal business expense that helps you build continued customer loyalty and satisfaction. In fact, 95% of customers say that a smooth returns process will encourage them to buy from a merchant again.

At the same time, it’s important to keep tabs on your return process to make sure it’s not being abused frequently. NRF found that 10.6% of online returns are fraudulent, costing retailers $23 billion in total.

So what is return fraud, and what can you do to prevent it? Let’s take a look.

Types of return fraud

First, consider some of the most common types of return fraud, so you can look for the signs that they may be impacting your brand.

  • Wardrobing
    What is it? Wardrobing, also known as bracketing, is one of the most common types of return fraud. It refers to the act of purchasing multiple products with the intention of sending some or most of them back. While it may go against the intended use of your products, it’s a surprisingly common act, with up to 20% of customers admitting to wardrobing.

    How to stop it? It can be frustrating for retailers, but consider a couple of different options for reducing bracketing: Improving your size guides so that customers will be more certain about which products will fit them correctly; and offering a “try before you buy” model that embraces bracketing – if customers aren’t worried about breaking the rules, they’re more likely to explore their options, and will hopefully end up paying for more products. Check out our guide to handling bracketing for more strategies. 

  • Competitor sabotage
    What is it? If you have cutthroat competitors, they may decide to purchase a large quantity of your inventory and then return it at the end of your return window, with the goal of depleting your inventory so that they can gain market share – or they may even report your products as counterfeit, risking your account getting banned on third-party marketplaces like Ebay and Fulfillment by Amazon.

    How to stop it? Consider asking for extra ID verification for large order quantities, so that you can cross-reference it against your competitors and refuse to process orders that don’t seem like legitimate customers.

  • Package returned empty or with fake merchandise
    What is it? Some deliberate scammers may make a habit of targeting retailers of high priced electronics and other products, by ordering the item and then requesting a return, but sending back an empty box or an inferior replacement, keeping the original item to resell for profit.

    How to stop it? With any high-value products, make sure that you wait to process a refund until the product has been inspected at your warehouse, so that fraudulent buyers don’t receive a refund for merchandise that they’ve stolen.

  • Stolen merchandise fraud
    What is it? Often, fraudsters will steal credit card numbers and use them to make high-value purchases from online retailers, and later return the products and pocket the money from the transaction. 

    How to stop it? Don’t offer refunds by any method other than the original payment method, or store credit. By preventing criminals from gaining access to the money, they’ll have no incentive to run this kind of scam with your store.

In addition to these specific actions, here are some other strategies you can take to reduce the number of fraudulent returns you receive:

Improve your fraud detection technology

Beyond these measures, you can also use fraud detection analytics tools that will look for anomalies in user behavior that could point to a scam – such as a suspicious IP address, a recently created email address, or bot-like actions on your website. If red flags are detected, your shop can prevent these users from making a purchase or a return. 

Set clear-cut return policies

It’s important to be generous enough with your return policies that customers will feel comfortable buying from you, but don’t be so generous that customers are likely to abuse the policy. For instance, the outdoors brand L.L. Bean had a notoriously generous policy of accepting returns in any condition with no time limit, but finally reigned it in by limiting the window to one year, after frequently receiving returns of hiking boots and other items that had been heavily used until the end of their lifespans. 

Many retailers limit their return window to 30 or 45 days, so you’ll still be competitive in most industries with a similar policy. You should also specify whether the item can show signs of wear and tear, or whether it needs to be in new condition, and can refuse returns that don’t meet your conditions.

Automate your returns management

By using a self-service returns management platform like Loop, you can set conditional workflows that map out the return-eligible conditions for each product – so that customers can instantly see whether an item is eligible for a refund, a credit, or an exchange. 

Consider being more generous with your conditions and time windows for store credit and exchanges, so that your customers will have incentive to make another purchase from your brand. With Loop, you can even offer “bonus credit” to encourage customers to request an exchange for any item in your store, rather than ask for a refund. That helps your brand retain the revenue from a return and keeps the customer in your sales funnel, increasing the likelihood of ongoing brand loyalty.

Return fraud is tough to eliminate completely, but with the right technology and policies, you’ll be able to keep it from hurting your bottom line.

Want to see how Loop can help? Get in touch for a demo.