Returns abuse: How much are serial returners costing your business?

Building loyalty and encouraging repeat purchases can be difficult, especially in certain sectors. For example, personal electronics aren’t everyday purchases and upgrade cycles are usually quite long. Elsewhere, competition between retailers can be fierce even with lower product prices.

In such a competitive arena, customer experience is king. Studies show that 92% of customers will buy again if the returns process is easy. So a flexible returns policy could be the difference between getting a new customer or losing a sale.

The problem is that returns abuse, especially on certain types of products, is a particularly lucrative business for scammers. And as you can imagine, an absolute nightmare for your profit margins.

For example, over 40% of Electronics merchants believe that 5–10% of all returns made in 2022 were the result of policy abuse.

This is huge! So, with mounting losses, what do you need to know about returns abuse and how to stop it?

Is returns abuse a type of fraud?

Assessing returns behavior can be tricky. It ranges from legitimate returns to opportunistic abuse and hardened fraudulent activity. You’re not just dealing with criminals but also genuine customers trying their luck. But what’s the difference between returns abuse and returns fraud?

Closely linked to refund abuse, returns abuse is when a customer uses your returns policy so much that it becomes unprofitable. Sometimes customers don’t realize what they’re doing is wrong. You also get genuine but opportunistic customers actively exploiting loopholes in your terms and conditions.

At the other end of the scale, we have returns fraud. This is outright malicious organized fraud for profit. In fact, sophisticated returns fraud is an entire industry!

Why should you be concerned about returns abuse?

As you’ve probably noticed, processing refunds is expensive. And used electronics, clothes and many other high-ticket items have decreased resale value. So you can’t always recoup the value of the returned item. You also have to invest time and money into transporting, repairing and restocking the items. This all adds up!

And not to be underestimated is the impact on your reputation. You might end up reselling products that have been tampered with. A genuine customer that receives a broken smartphone is unlikely to sing your praises.

Social media influences over 70% of purchasing decisions. So you’re losing potential customers – and you have to process a new return on top of that.

Types of returns abuse and fraud

There are a number of ways that customers might try to get one over on you. And as you’d expect they range from being a bit brazen to outright fraudulent. Here are a few common tactics to watch out for:

1. Wardrobing

This is where a customer buys something with the intention of returning it after they’ve used it. It’s also sometimes referred to as “free-renting”. This trend is often discussed in relation to fashion retail, but is also extremely prevalent in electronics.

For American retailers, this is a hot topic around Super Bowl weekend. Customers buy huge expensive TVs with all the trappings, only to return them after the game.

2. Resellers

Refund abuse and resellers often go hand in hand. Resellers bulk buy stock to sell at inflated prices. They will often take advantage of your refund policies to return the items they couldn’t shift.

3. Item did not arrive

Customers saying their order never arrived is one of the most common forms of returns abuse. A variation of this is customers claiming their items were damaged in transit or arrived faulty.

The crafty customer winds up with a refund and a state-of-the-art gadget they can resell for profit.

3. Bricking fraud

Bricking fraud involves a fraudster buying an item and stripping it of valuable components to sell. A popular example of this is buying smartphones and taking out the speaker or circuit board to resell. The fraudster then expertly reassembles it ready to return. Who’s going to know?

4. Returns manipulation

Fraudsters are notoriously creative when it comes to duping retailers into processing fraudulent returns. So there are many versions of returns manipulation.

Fraudsters will buy a new device and return their old model in the brand new box to try to receive a full refund. Many have been known to use a random item that weighs the same. We’ve all heard the story of the iPhone that was actually a carefully weighed potato!

Why is returns abuse on the rise?

The pandemic upended so much of how we shop. And this has had a huge impact on fraud. For one, contactless delivery makes it harder to confirm a successful delivery. So it’s easier to claim that a package never arrived. And ‘return anywhere’ systems make it even harder to track.

Social media is also making fraud easier. Genuine customers can get all the tips and tricks on how to get one over on your business in a matter of taps. All they have to do is log onto Reddit, TikTok, Telegram or Twitter.

How can you stop returns abuse and plug this revenue leak?

Tackling refund abuse can be tricky and it’s often hard to know when and where to intervene without disrupting customer experience. The worst thing you could do is deny a legitimate returns claim. So it really is a balancing act. There's no single remedy, but here are a few tactics you should definitely put into action:

• Set thresholds: Returns are inevitable, but you need to decide what is an acceptable rate for you. You need to find the sweet spot where you can offer attractive policies without destroying your profit margins. What makes sense for your business?
• Look at behavior: Monitor how many returns customers make over a period of time. If a customer returns more than they keep or returns items too quickly, you might have a serial returner on your hands. If they take too long to make a return, it could indicate free-renting.
• Educate opportunistic customers: Most returns abusers can be reformed! Education and warnings should be enough to discourage opportunistic behavior. Sending badly behaved customers an email lets them know that you’re onto them. Knowing they’ve been spotted will often be enough to put them in check.
• Stop making it easy: You want to give customers the most seamless experience possible but that shouldn’t be to the detriment of your bottom line. Adding friction to flagged customers or suspected fraudsters could make all the difference. This could simply be making it harder to request returns.
  

For more help stopping refund and returns abuse, read our product page.

Related resources

• 5 types of refund abuser you’ll meet after the peak period sales boom – and how to deal with them
• Article & video: Experts share 5 return & refund abuse prevention strategies
• Refund abuse: Why is it on the rise and how do we stop it?
• Video case study: How Trainline handles refund abuse
• All refund abuse resources