Nearly two-thirds of Australian retailers (60 per cent) have experienced some type of returns fraud or policy abuse in the past 12 months.
This comes from new survey data released by returns management platform Loop, covering how retailers feel about the escalation of returns fraud and policy abuse.
The survey covered more than 600 full-time associates and analysts based in the United States, the United Kingdom and Australia who are working in the retail industry and have responsibility for their brand’s return process.
On a global scale, 99 per cent of retailers have experienced fraudulent returns, which suggests that Australia’s lower score of 60 per cent is driven by reduced spending on non-essential items and an uptick in essential-only spending year-over-year.
Retailers believe the primary reason consumers engage in returns fraud is because the current economic climate is leading shoppers to try to exploit return policies to improve their financial situation (43 per cent). Other possible factors include dissatisfaction with product quality (41 per cent) and an intent to use items only temporarily (35 per cent).
Other data shows that quality dispute was the most common type of fraud/policy abuse companies experienced (53 per cent of them), followed by wardrobing and returning an item with the intention of keeping it (both at 47 per cent).
In Australia, quality dispute issues were higher at 66 per cent.
Meanwhile, a majority of Australian retailers (65 per cent) agree their company is taking this rise in returns fraud and policy abuse seriously. However, only half of retailers (53 per cent) rate their company’s detection and prevention measures as very effective.
Nearly three-quarters (74 per cent) of Australian retailers say their company prioritises customer experience over fraud and abuse prevention, and 51 per cent indicated that ‘maintaining a good customer experience”’ was the top challenge their company faces when addressing returns fraud or policy abuse.
Permanently banning repeat offenders from making future purchases (46 per cent) and highlighting the negative environmental impact of returns (40 per cent) are the top actions Australian retailers are taking to combat returns abuse.
“Our latest industry data report reveals a notable rise in returns fraud and policy abuse over the past year, highlighting the importance of understanding consumer behaviour not just in purchasing, but also in returns,” Loop CEO Jonathan Poma said.
“The challenge is enormous: for every $100 in returned merchandise, retailers lose $10.40 to returns fraud. Retailers are implementing sweeping changes to address this drain on their bottom line, and our insights show that a data-driven, customised approach is key to reducing fraud while delighting genuine customers.
“Leveraging tools like advanced fraud detection models and return fees can provide merchants with the resources they need to not only mitigate these issues but also improve their return processes as a whole."
The report also offers other avenues of mitigating returns fraud, including examining consumer behaviour as a primary defence mechanism, improving education for consumers about what constitutes fraud, establishing clear consequences for returns fraud versus policy abuse and reviewing all returns data. This includes item grade and disposition data from the returns warehouse, which can make it easier to spot deceitful shoppers.
Amid the results, Australian Retailers Association CEO Paul Zahra said returns fraud is contributing to a perfect storm in the local retail market.
“The retail sector is facing unprecedented challenges due to the cost-of-living pressures impacting all Australians and hence, a slowdown in discretionary spending.,” Zahra said.
“Business costs are skyrocketing and added impacts like high interest rates and the rising cost of doing business are creating the perfect storm.
“Whilst most shoppers do the right thing and return and exchange items in accordance with a trader’s purchasing policies, there’s no doubt that shoppers who buy and return items fraudulently are impacting retailers.
“Retail crime is on the rise, and this includes fraudulent returns.”