The 2023 Consumer Returns in the Retail Industry report revealed some concerning statistics. Total retail returns added up to $743 billion in 2023, or 14.5% of all sales. Of those returns, 13.7% (amounting to more than $100 billion) were fraudulent.
Fraudulent returns create costs that go well beyond the merchandise itself, including shipping, administrative fees, and the employee time spent communicating with customers. That hurts both 3PLs and the retail clients whose returns they handle.
Top Types of Returns Fraud
Wardrobing (experienced by nearly 49% of respondents): Customers purchase expensive apparel or accessories, wear them once, then return them for a full refund. Some consumers don't even view this as fraudulent.
Return of shoplifted or stolen merchandise (44%): Perpetrators shoplift from stores with receiptless return policies, then exchange the stolen goods for cash.
Return of merchandise purchased on fraudulent or stolen tender (37%): Fraudsters use counterfeit money or stolen credit card numbers to purchase goods, then return them for a real refund.
E-commerce brings its own fraud tactics, including:
- Merchandise exchange: Customers buy a new version of a product, then return an old item in the new packaging. This is common with electronics.
- Bricking: Buyers purchase a product, remove valuable components for resale, then return the gutted item.
Avoiding Returns Fraud for Your 3PL Customers
Retailers should establish strong return policies, including:
- Eligible product categories
- Compensation types, such as exchanges or store credit vs. cash refunds
- Refund timing after inspection
- Return windows after purchase
Train your team members on each client's specific policies, and build inspection criteria into your workflows so employees check for wear, tampering, and product version accuracy. Using fully guided workflows that walk employees through the inspection helps mitigate fraudulent activity.
Monitor serial return customers who frequently request refunds. While they're not always committing fraud, they abuse policies and increase costs. Remedies include requiring manual approval after a threshold number of returns, offering exchanges instead of cash, charging restocking fees, or recommending that the customer be blocked.
For the best fraud prevention, implement a robust visibility platform with real-time inventory tracking, guided workflows, integrated image capture to establish proof of condition, and inspection tools.