Solving Return Abuse: The $25 Billion Problem

by | Jul 20, 2022 | Blog, Returns Automation

Solving Returns Abuse: The $25 Billion Problem

In almost every purchase, modern customers look for flexible return policies. According to recent research findings, Forter discovered up to 97% of consumers claim that return policies impact their chances of purchasing with a retailer. This is especially valid for consumers purchasing accessories and apparel. However, flexible return policies can also lead to returns abuse.

Shoppers often use online and in-store returns and consider these options to be of great importance. Business people must therefore deliver customer-friendly and frictionless returns to meet consumers’ expectations. However, the increasing flexibility makes return policies a larger abuse target. Currently, up to 20% of returns are considered fraudulent or abusive.

So, what exactly is return abuse, how does it affect online retailers, and what are the possible solutions? Read on!

What Is a Return Abuse?

Return abuse is when customers try to take advantage of the returns policy by challenging the terms and conditions. Basically, they are using the return policy for personal gains. Unfortunately for businesses, this sort of scam has turned into a billion-dollar issue.

However, not all returns abuse may have malicious intent. Sometimes, it might be a consequence of an honest client making a mistake. For instance, if the client did not correctly understand the return policy and the error was not noticed by an employee.

People Commonly Abuse Return Policy in the Following Ways:

  • Wardrobing: Using a product than taking them back to the retail for a refund
  • Returns Fraud: Returning a different item from the original one
  • Shoplisting: Abusers using a stolen list to request for return as if they purchased items in the list
  • Repeat Offenders: abusers setting up multiple accounts to request item returns
  • Free Shipping Abuse: Customer purchasing items to be eligible for free shipping and then returns them

Why Returns Abuse Has Risen in the Past Five Years

Extended Returns Period

Most online retailers significantly lengthen return duration to accommodate courier delays and replicate the “try before buying” point of sale. Extended return durations entice people to buy in quantity and return successfully.

Huge Returns Chains

“Buy, pickup, and return wherever” practices are already commonplace. Shopify provides return drop-off stations in most places across the U.S. While these are valuable services, networking is so extensive that tracking returns becomes difficult. Refund abusers might also benefit by returning less valuable counterfeits instead of original goods.

Contactless Delivery

Since the covid outbreak, doorstep deliveries have been critical for keeping workers and customers safe. However, the effectiveness of these deliveries is sometimes challenging to prove. Buyers might claim they did not receive their orders even if they did to gain a refund.

The Impact of the Covid Pandemic

Due to the global pandemic, online retailers had to ramp up delivery services to meet demand while giving extremely flexible return policies. It’s a wise approach as 83% of customers say they only purchase from businesses with favorable return policies. However, a simplified return procedure has opened doors to increased refund abuse.

Why is Return Abuse Problematic for Companies

In 2020, customers returned items totaling $428 billion, accounting for more than 10% of retail sales. The National Retail Federation survey shows the cost of returns totals $101 billion. Return abuse is growing worse daily; companies must be aware of the risks posed by this fraud.

This behavior affects companies in the following ways:

Poor Customer Experience

As return abuse increases, many merchants feel pressured to add strict terms to their return policies. It may include shortening the period permitted for accepting returns to solely offering shop credit instead of rewards. Some situations may require more drastic measures, including imposing a restocking charge for expensive items. These are all effective techniques to reduce the impact of return abuse but may negatively impact the customer experience.

Lost Revenue

Return abuse depletes inventories that may be offered to legal customers.  According to a survey, it costed retailers over $25 billion in 2020. Furthermore, 54% of companies make losses amounting to over $5 million in annual revenue due to this behavior.

Increased Operational Costs

Returns abuse has an impact on revenue beyond the goods themselves. There are also operational charges to think about. When there is an upsurge in return abuse, people are more likely to inspect every return for evidence of abuse. The procedure can be time-consuming and may require additional resources to keep things running smoothly.

Tips For Preventing Return Abuse

Here are a few examples of recommended practices for avoiding returns abuse in your company:

  • Set a strict deadline for eligible returns
  • Maintain a straightforward and accessible returns policy
  • Charge restocking fees on larger ticket items
  • Only issue cash refunds after a receipt is produced

Tips for Implementing Good Policies

Avoid making too many modifications to your returns policy. A strict or complicated return policy may drive away potential customers. There has to be a balance between managing return abusers and keeping a friendly customer return policy. Here are a few tips for implementing a good returns policy:

  • Send emails informing your customers to adhere to the returns policies as mentioned
  • Restrict the customer’s account not to accept free deliveries
  • Limit the duration of the eligible return to 14 days
  • Block the customer’s transactions immediately

Bottom Line

Eliminating returns abuse can be difficult, but you don’t have to take up the task alone. We at Elite EXTRA are here to assist you in better monitoring your orders to avoid missing parcel scams or failed delivery. Furthermore, our returns management software allows your customers to conduct returns independently while giving you total control from your end with our returns dashboard and returns policy setting.

Contact us today to enjoy our exclusive services.

Sources:

https://www.forter.com/blog/returns-abuse-protection/

https://www.shopify.com/enterprise/ecommerce-returns

https://www.forbes.com/

Colton Ward

Colton Ward

Author

Colton Ward is our Strategic Marketing Coordinator and Marketing Video Producer. Get it? "Marketing Video Producer" = "MVP" (He came up with that title himself...). On a typical work day you can find him squashing website bugs (or being squashed by them) and swinging a camera around the office for the company's next video. When not at work, he enjoys boating and skiing his way around Wisconsin's beautiful lakes!

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