The Evolution of Retail Return Schemes

There is perhaps no better time for retailers to evaluate their return policies than the lull following the holiday season sales surge. In particular, retailers should assess their vulnerability to return fraud. According to the National Retail Federation, retailers lose $18.4 billion annually to fraudulent returns.

This significant amount points to a serious problem; retailers have expanded online sales platforms, but the systems processing shipping and receiving can be especially vulnerable to fraudsters’ return schemes. With trends indicating greater rates of online shopping, as well as online returns, profitability in online retail spaces may depend on companies’ ability to protect against losses due to return fraud.

New Platforms, New Schemes

Traditional retail return fraud may involve returning items that were stolen or purchased elsewhere for a cash refund or using return policies to “rent” items at the store’s expense. With the increasing popularity of online sales, dishonest customers have found new avenues to cheat retailers.

Items bought online may be returned in-store to circumvent limited online return policies. Shipped returns can be even more susceptible to fraud. Scammers have been known to return a knockoff of the original item and rely on the automation of the return process to approve a refund.

These schemes present a dilemma for retailers. Retailers must weigh the customer appeal of a flexible return policy against the potential for losses to return fraud. When making these decisions, retailers should keep in mind the rapid development of online return fraud, including a new trend in return fraud online networks that have emerged to facilitate individuals’ fraudulent returns on online sales.

While return fraud is a constant threat for retailers, there are ways to mitigate the risk and deter dishonest customers. SDC CPAs has found key practices for protecting against return fraud include using an updated, sophisticated inventory system specifically designed around preventing fraud and crafting a comprehensive, well-defined return process. This kind of process could include time limits, required documentation, customer information, and stipulations about the item’s condition.

However businesses decide to handle the threat of return fraud, SDC CPAs recommends performing internal assessments and acting judiciously.

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