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Alarming rise in online return fraud & abuse

Alarming rise in online return fraud & abuse

The rise of online shopping has brought about a new issue for retailers: an increase in online return fraud and return policy abuse, according to a recent consumer study by return management platform Loop. The report’s alarming detail reveals that approximately 38% of UK shoppers admit to having engaged in return policy abuse or fraudulent behaviour in the past year.

Loop’s study, which surveyed online shoppers, showed that of the 38% admitting to fraudulent behaviour, 43% said they had made purchases using another individual’s credit card and then attempted to process the refund onto their card. Worryingly, this type of activity occurred weekly for 9% of these individuals. Additionally, over a third (34%) confessed to designating a perfectly operational item as defective to receive a discount or refund.

The return policy abuse does not stop there; 42% who confessed to engaging in online return fraud activity had returned an empty box or a cheaper item instead of the original item to the seller. Approximately 7% admitted that they aimed to retain or gift an item without paying for it. Notably, return volumes have seen a notable surge in the summer months, with May and June making up almost one-fifth (18%) of the total returns volume over the past 12 months.

Online return fraud

Analyst house GlobalData revealed that in 2022, the value of online clothing returns made by UK shoppers exceeded GBP 4.1 billion. Predictions suggest this figure will increase by 16.7% by 2027. Separate research indicates that return fraud was responsible for an astonishing USD 101 billion total loss for retailers in 2023. This converts to sellers losing approximately USD 13.70 for every USD 100 worth of returned merchandise, and this does not consider unfavourable return behaviours, such as buying multiple products for fit purposes to later return them or one-time wearing of items before returning.

Jonathan Poma, CEO at Loop, said, “Return policy abuse and fraud poses an enormous challenge to retail brands. While determining fit and size is important for customers, behind the scenes it is causing harm to retailers by contributing to higher return rates, operational challenges in restocking, and fraudulent activity resulting in damaging financial losses.”

“Retail merchants are finding their profit margins under deep scrutiny in today’s environment, and there is a strong need to analyse fraudulent patterns and identify repeat offenders. But it’s a careful balance that retailers are trying to strike, to both reduce the impact of returns fraud and abuse on merchants’ bottom lines whilst still retaining their best customers and ensuring an efficient customer experience.”

The research discovered that UK consumers favour those retailers that offer flexibility in their shopping experiences. Of the respondents, 63% agreed that if a brand enabled them to wear or utilise products with the option to return some or all of them, they would choose that brand over a competitor.

Further, 98% of online shoppers agreed that the retailers that propose comprehensive and flexible return policies care more for their customers. These findings serve as a reminder of the fine line between fraudulent activity and acceptable return behaviour, which presents an ongoing challenge to retailers to strike a careful balance in an increasingly competitive market.

How to reduce your rate of returns

The ecommerce industry today is booming and shows no signs of slowing down. It does however come with its drawbacks. As customers don’t get the chance to try before they buy, to some degree, they are submitting to the fear of the unknown. When an item arrives, it may not be as it appeared online, it may not fit, or it could be damaged. So how do you reduce your rate of return?

The perfect solution for reducing return rates. Alongside the surge in online shopping comes a much less desired activity for retailers: returns. While many retail brands have seen increased sales as a result of online shopping, a significant amount of these sales are being affected by excessive returns. 

Hyper-personalisation of product selection becomes mission-critical

While all the surveys in the world identify obvious solutions, all of which have been known and appreciated for quite a few years, the new darling of ecommerce – hyper-personalisation, has a less understood or appreciated benefit – minuscule return rates. But it is biding its time, and mark our words – the next few years will see increasing appreciation and euphoria on this specific issue.  If you offer hyper-personalisation of product selection in your emails you are showing the consumer products that have already been identified as those they want to buy, hundreds of times more than items merely sitting on a shelf ecommerce page, or social commerce site.

This isn’t a fad choice. This isn’t an “I’ll bung it on at the end of my selection as I can always send it back, anyway“. These are products already identified by impressions and purchase history of that individual consumer, therefore thousands of times more likely that they’ll love and want, as dictated by their prior actions. Who returns a puppy?

Hyper-personalised product selection solutions, using predictive analytics technologies like these top 30 hyper-personalisation solutions, identify consumers’ future behaviour by ranking every SKU by the greatest likelihood of that individual consumer to purchase from all the SKUs listed, in order of greatest propensity. It presents them to that individual at exactly the right moment, thereby maximising that individual’s customer lifetime value CLV potential. (i.e. Likelihood to Purchase, Discount Affinity, Likelihood to Churn etc).

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