UK retailers face rising returns fraud amid economic strain

New research from Loop, a return management platform, has highlighted a rising trend in returns fraud and policy abuse among UK retailers.

The findings indicate that 91% of UK retailers have experienced an uptick in fraudulent returns or policy abuse over the past 12 months. A significant portion of surveyed retailers attribute this behaviour to shoppers looking to improve their financial situation amidst the current economic climate.

The survey, which involved over 600 full-time associates and analysts from the US, the UK, and Australia, aimed to provide insights into the challenges faced by online retailers, with a specific focus on the UK market. According to the report, returns fraud (64%) was identified as the biggest challenge, closely followed by policy abuse (49%). Other notable issues impacting retailers included high operational costs (37%), supply chain disruptions (22%), and escalating advertising costs (14%).

Over half of the respondents (54%) acknowledged the difficulty of balancing customer experience with the need to protect their business against returns fraud. The report also provided a breakdown of the perceived motivations behind fraudulent returns, revealing that 55% of respondents believe shoppers are driven by financial motivations. An additional 37% identified the intent to use items only temporarily, while 25% attributed the behaviour to dissatisfaction with product quality.

Further examination of the types of fraud and policy abuse revealed that returning ineligible items (51%) was the most common issue, followed by quality disputes (45%) and "wardrobing" (35%), where an item is returned after being worn. Despite these challenges, an overwhelming majority (96%) of respondents affirmed that their company is taking the issue seriously. However, less than half (44%) rated their detection and prevention measures as very effective.

In response to rising fraud, 53% of companies prioritised customer experience over fraud and abuse prevention, while 59% had tightened their return policies. Other measures included offering store credit or exchanges (42%) and implementing return fees (39%).

The report also offered several actionable insights for retailers, including examining consumer behaviour as a primary defence mechanism, improving consumer education on what constitutes fraud, setting clear consequences for fraud versus policy abuse, and reviewing all returns data. Loop suggests that these steps are crucial in enabling retailers to identify and address deceitful shoppers more effectively.

Jonathan Poma, CEO of Loop, commented on the findings: "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." He pointed out the significant financial impact, noting, "For every $100 in returned merchandise, retailers lose $10.40 to return fraud." Poma emphasised the need for a data-driven approach, stating, "Retailers are implementing sweeping changes to address this drain on their bottom line, and our insights show that a 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 findings underscore the importance for retailers to remain vigilant and proactive in combating returns fraud and policy abuse, especially as the economic environment remains challenging for many consumers.