Returns have always been a thorny issue for retailers. They're expensive, operationally complex, and often poorly tracked. But now, there's a growing complication: returns fraud.
What was once a niche problem has grown into a sophisticated, widespread issue - fuelled by social media and digital collaboration. Fraudsters are sharing tips and loopholes online, using technology to manipulate returns systems. Some are gaming policies for refunds totalling ten or even hundreds of thousands of dollars.
Retailers must respond. But simply cracking down across the board risks alienating honest customers who expect a seamless, hassle-free returns process. What's needed is a smarter approach one that blends technology, data, and customer-centricity to outpace fraud without compromising loyalty.
A growing concern: returns fraud in retail
An increasing number of customers are exploiting loopholes in returns policies. Common scams include:
- Wardrobing: Buying items to use once (e.g. for an event) and then returning them.
- Receipt fraud: Using fake or stolen receipts to claim cash or store credit.
- Dummy parcels: Sending back boxes that match the original weight but are filled with junk material like dirt.
-
"Keep it" policy abuse: Identifying items most likely to be refunded without return and taking advantage.
These tactics cost retailers in the United States nearly AUD $155 billion annually - and the trend is making its way to Australia. It's clear retailers need a new strategy.
Stricter policies risk customer trust
To reduce losses, many retailers tighten returns policies, shortening windows, requiring extensive proof of purchase, or limiting eligibility. But these blanket changes often backfire.
According to Blue Yonder's 2024 research, 69% of customers say stricter return policies would make them think twice before buying.
Overly rigid rules can result in:
- Lower customer retention and satisfaction
- Negative word of mouth and reviews
- Lost sales to more flexible competitors
Instead of assuming all customers are bad actors, retailers should focus on distinguishing between legitimate and high-risk behaviour.
Use smart tech to flag the real fraud
Retailers that invest in tech-forward solutions can reduce fraud without impacting the broader customer base.
- Leverage existing data
Retailers should integrate item processing data (e.g. condition checks, warehouse processing) with customer records. This makes it easier to identify inconsistencies and flag suspicious accounts. For example, if a return request comes from a new customer, the refund could be delayed until the item is assessed. But a tenured customer might receive a refund as soon as the parcel is lodged.
- Adopt AI and machine learning
Machine learning is a powerful tool for identifying fraud patterns at scale. AI systems can analyse vast datasets to spot repeat offenders, highlight geographic return hotspots, or flag categories with abnormal return rates. These insights allow for dynamic policy adjustments tightening scrutiny for high-risk cases while keeping returns easy for everyone else.
- Streamline processing
Faster return processing is also a deterrent to fraud. If items sit in a warehouse for weeks, retailers have no visibility into whether returns are legitimate. A faster, more automated return flow ensures that discrepancies are identified and bad actors stopped sooner.
Looking beyond fraud: improving the full returns journey
Returns fraud is a serious challenge for Australian retailers, but overcorrecting with restrictive policies can do more harm than good.
By combining data, automation and AI, retailers can take a targeted approach - identifying bad actors without punishing loyal customers. The result? A more sustainable, fraud-resilient returns model that strengthens customer satisfaction and brand loyalty.
But it's not just about stopping fraud. The returns process is part of the broader retail experience - and it's a major driver of loyalty. Smart investments in returns technology won't just reduce risk - they'll make businesses more resilient, responsive and ready for long-term growth.
