Return Fraud 101

Hello Friends,

It’s January yet again. If you are on the East Coast, you probably had a cold and rainy few days to stay inside and ask yourself the age-old question: why do we like this pain and seasonal depression?

If you are somewhere warmer and sunnier, you probably have been enjoying long walks on the beach without a worry on your mind?

Oh well. 

Lots to work on this week as we kick off 2024, and I’m sure you are all right here with me. While most 2024 goals I’ve seen are around physical health, I hope you join me in my goal to put mental health first this year.

Working hard does not exclude you from the “staying sane™️” club. (More to come, maybe?)

Take time for yourself, even if it’s a few minutes a day.

This week, I’m talking about a topic that has come up in the CX Discord many times and has been mumbled about in ecom for a hot minute now but probably not spoken loudly enough.  

According to a recent message in the discord:

“We found from our customers that ~1% of total customers account for 15% of total returns, and a lot of these folks are abusers/fraudsters.”

Return fraud is a problem plaguing small brands and big brands alike.

But most are unsure what it is and how bad it affects their bottom line.

Grab a chair; let’s talk.

This week’s newsie is brought to you by Loop, the leading ecommerce returns management platform, and a tool we’ve used (and loved) at both OLIPOP and Jones Road Beauty. 

For brands looking to decrease their return costs, increase revenue, improve their customer experience, and (most relevant to this newsletter) prevent returns abuse, Loop is the returns management platform you need to know. 

Here’s how Loop Returns helps brands prevent returns abuse and fraud:

Customize your returns policy: Loop provides brands with the tools they need to customize their return policy so they can continue to drive customer loyalty without losing revenue to fraud. Loop’s platform allows brands to leverage customer behavior data to automatically tailor the return experience, leading to increased controls where needed to mitigate policy abuse. 

Offer personalized incentives: Post-purchase incentives drive customer loyalty, but it’s also important to set guardrails to protect your brand from return fraud. Loop is built to support both sides of this challenge. Whether your goals are to offer higher bonus credit amounts or extend the return window for your best customers, or limit the amount of times a shopper can take advantage of these types of incentives, Loop can help bring your returns strategy to life.

Leverage integrations for more control: Loop has deep integrations with the most impactful tools that power ecommerce today, allowing brands to easily integrate their warehouse or 3PL solutions directly into Loop’s platform. Through this, brands can better understand their customers’ behaviors by harnessing item grade and disposition data directly from those integrations to make decisions. Using this combined power of integrations and data, brands can effectively automate and prevent against repeat offenders of fraud and abuse.

Here’s what Rothy’s, a Loop customer (and avid fan!), had to say in a recent webinar about Loop’s role in supporting their returns abuse strategy:

“Loop is helping us catch [repeat offenders], so we can either stop them in that moment from returning a box of rocks and prompt them to return the correct item, or we can prevent abuse from happening all together next time.” 

Since 2017, Loop has made a significant impact on ecommerce. Just check out some of the results they’ve driven for these brands:

Aviator Nation: Boosted exchanges and upsells, contributing to an 11% reduction in refund rate and an average upsell per return of $10.31. 

Saint & Sofia: Retained 50.5% of returns revenue annually using Loop.

Loop doesn’t just help brands manage returns. Loop takes a negative and costly touchpoint in the customer journey and transforms it into a delightful and profitable experience for brands and their shoppers.

Returns Fraud and Abuse 101:

Fun topic–I know. Let’s go!

Returns abuse falls into one of two categories: 

1. Return Policy Abuse 

2. Outright Fraud

Return policy abuse is when a customer deliberately takes advantage of or violates a company’s return policy. 

A good example of return policy abuse is something like wardrobing—buying an item to wear once with the tags on and then returning it as though it wasn’t worn out. IDK, say for an event that you need a bright red sweater you know you won’t wear again. 

Outright fraud, on the other hand, can look a number of different ways when it comes to return abuse. 

It can look like someone claiming an item never arrived to receive a refund or replacement, which has come up more often in the last 24 months than I have seen in the eight years before.

It can also look like “making a return” only to send back a box full of rocks instead of the goods the shopper has claimed they’ve “returned.”

Combating Returns Abuse:

In chatting with Loop and doing research for this newsie, I learned that return abuse is on the rise. 

According to the American Retail Federation, American retailers lose an estimated $24 billion from return fraud per year. Plus, for every $100 in returned merchandise accepted, retailers lose $10.40 to return fraud. 

So, how do you effectively combat returns abuse while still maintaining an easy and seamless return policy for everyone else? 

I’ve collected a handful of techniques from Loop, as well as a few from the incredible CX leaders in our Discord. 

Automatically separate returns that need manual review: At Jones Road, we set up workflows and automations to sniff out potential fraud, prevent fraud in the moment, and catch repeat offenders.

We looked at customers with a high level of repeat returns, customers with repeat issues of orders not being delivered, and orders with high-value returns (this will depend on your AOV, but for us, it was $250 and more.) 

It’s also worthwhile to look at weird anomalies, such as orders with a ton of the same SKU, if that feels irregular.

We set these up to trigger a manual review, and we can then decide if we want to push the return through.

You will generally start seeing patterns of specific order types, and you can continue building workflows to tackle those specific ones while still allowing the rest of the returns to flow through and not cause a huge backlog. 

Add FrIction for Repeat Offenders: When someone is ordering on your website, you obviously want to make the entire experience as seamless as possible, and yes, that includes returns.

I once heard a well-known operator saying on a podcast that they loved making every single person email in to process a return for a very cheap, consumable product.

Yes, that might lower your return rate, but that also makes for a really tired CX team and an awfully annoying experience for the 99% of customers who return in good faith. 

Instead, find the folks who regularly abuse your policy and make it really difficult so that they avoid you in their future escapades.

Some good options if you are certain that the return is from a repeat offender:

1. Charge a substantial restocking fee for repeat returns that you can waive if the return is legit (need to add to your terms & conditions that “restocking fees may apply)

2. Add a waiting period of a few business days for repeat offenders so that they need to wait a while for their refund

3. Create a blocklist for folks that you are certain are abusing return policies

When it comes to straight return fraud, avoid processing the return, let the customer know they did not return the item but rather returned rocks, and add them to a blocklist so that they can no longer process a return (or order again on your site, if you are feeling more vicious lol)

Limit return options for suspected fraudsters: In general, I’ve seen so many brands extend generous return options for standard customers, like “shop now” which gives the ability for customers to choose store credit to shop for new items as soon as they click “process return,” as well as the ability to do an instant exchange.

From the research I’ve done and the brands I’ve worked with, I continue to see an easy and seamless return experience is one of the top reasons a customer might love your brand.

You definitely don’t want to ruin it for everyone just because of these few scammers. 

The first thing I’d do for suspected fraudsters is remove all of those extra VIP options.

I recently learned about some solid steps Rothy’s took to fight this abuse:

With Workflows, Rothy’s uses Loop to separate orders effectively and find the fraudsters, and then they exclude the ability for these suspect returners to make a return through return bars, Instant Exchange, or Shop Now—all of which have loopholes a fraudster might try to take advantage of—until the return has been approved manually.

This strategy of limiting the methods by which suspected fraudsters can make a return allows Rothy’s to cycle these returns through a much more rigorous review process. 

I mean, the goal is always to create a return policy that stays generous and attractive while still keeping fraudsters and scammers at bay.

A great return policy helps increase customer lifetime value and makes the shopping experience easy, fun, and light for customers. 

Now, let’s just keep those pesky scammers away. 

That’s it for this week!

If you are interested in sponsoring this newsletter to get in front of 12.5k engaged readers, please feel free to reply to this email.

Cheers, 

Eli 💛