How to stop ecommerce return fraud
JP Arnaud-Marquez
·August 2, 2022
As a merchant, it’s important to offer a generous returns policy that gives customers a chance to see if your product is the right fit for them.
The cost of processing and refunding returns is a normal business expense that helps you build continued customer loyalty and satisfaction. In fact, 95% of customers say that a smooth returns process will encourage them to buy from a merchant again.
At the same time, it’s important to keep tabs on your return process to make sure it’s not being abused frequently. NRF found that 10.6% of online returns are fraudulent, costing retailers $23 billion in total.
While some scam artists deliberately defraud merchants by taking part in schemes such as “empty box” scams, other types of return policy abuse are less nefarious, but no less damaging to your bottom line.
Specifically, wardrobing and bracketing are two common forms of return abuse that many customers take part in—often without realizing the negative impact their actions may have on the brands they buy from.
Let’s take a look at these two types of return fraud in more detail, and discuss fraud prevention strategies to curb this behavior.
Bracketing
Bracketing is one of the most common types of returns fraud. It refers to the act of purchasing multiple products with the intention of sending some or most of them back—essentially, using your brand’s return policy as a home try-on service. While it may go against the intended use of your products, it’s a surprisingly common act, with nearly half of ecommerce customers admitting to bracketing, especially when sizing options aren’t clear.
Other common reasons customers bracket apparel? Because they’re not able to try on the items in a fitting room (36%), they’re unfamiliar with the brand (26%), or they’re not sure of their size after weight gain or loss (23%).
Of the customers who engage in bracketing, many do so with alarming frequency: Our Consumer Fraud Report found that 25% of these customers do so at least once a week.
How to address it:
Building the right approach to combat bracketing can be delicate. After all, you want to ensure that your customers find the right fit and style—but not at the cost of your profits, when less than half of all returned products can be resold at full price.
So what should you do? There are two competing strategies at play:
Embrace it
If you can’t beat ‘em, join ‘em. Some retailers have built their businesses around encouraging bracketing, at least for loyal customers. For example, Amazon Prime members are entitled to take advantage of the brand’s Prime Try Before You Buy program, in which they get to choose six items to try out at home for a week. They can return as many as they like, and are only charged for the items they wish to keep.
Taking this approach can help retailers set guidelines around behaviors that customers are likely to engage in anyway, and turn bracketing into a marketing strategy. It may encourage shoppers to try out more expensive products than they might otherwise select, which could result in a higher customer lifetime value for the products they decide to keep.
Discourage it
On the other hand, we’re not all trillion-dollar brands like Amazon. Smaller brands may prefer to discourage customers from bracketing, rather than embracing it.
In this case, it can help to implement return shipping fees on your returned products, which will lead shoppers to think twice before making a purchase they’re not confident that they’ll keep.
But in order to reward brand loyalty, consider offering free exchanges if the customer decides to swap out one size or color for another, or even to try an entirely different product from your shop. Using Loop’s Instant Exchange feature, they’ll be able to instantly apply their refund credit towards the new product, with waived return shipping fees. This approach can help you retain customers who might otherwise look for options elsewhere, fostering a continued relationship with your brand.
Improve your product descriptions and visuals
Whichever approach you decide to take with bracketing, you can help your customers feel more confident in their purchases in the first place by providing as much information up front as possible.
That means it’s important to prioritize high-quality visuals, including photography and videos, and encouraging customers to share their own user-generated content, along with reviews that share their perspectives on the products they’ve purchased. Size guides that include measurements and comparisons to other brands can also help customers feel more confident in their product sizing, so they’ll be less inclined to purchase multiple variants to try on.
By providing your shoppers with an abundance of information up front, you’ll help them gain confidence in their choices, discouraging bracketing.
Wardrobing
Another common form of returns abuse is known as “wardrobing,” and refers to the practice of purchasing an item just to use or wear it once, and then return the product for a full refund.
This form of returns abuse is especially prevalent in shoes, accessories, and apparel, with 37% of online shoppers admitting to taking part in this practice.
Shoppers often take part in wardrobing because they need an item for a one-time event, such as a wedding or dance, and do not want to pay the full cost of the item. Social media influencers, who are regularly showcasing their #outfitoftheday, are also prone to engage in wardrobing: Forter shared an anecdote about a fashion influencer who returned 85% of the merchandise she purchased from a retailer after snapping photos in the clothes.
Wardrobing was even more common than bracketing in our Consumer Fraud Report, with 30% of respondents who’ve engaged in returns fraud claiming that they’ve bought items they know they plan to return at least once a week.
How to address it:
Set a strict returns policy
When it comes to wardrobing, a clear-cut returns policy is your best defense. You may want to set restrictions on the condition of items that can be returned for a full refund, specifying that items must be in new, unworn condition with the original tags still on. If items have been worn, you may still offer some leniency, but offer these customers access to an exchange or store credit, rather than a full refund. Loop makes it easy to set conditions on returns and ask customers the right questions to ensure that they’re not abusing your returns policy, offering them either a refund or an exchange depending on the circumstances.
Of course, if an item is truly defective, it’s important to stand behind your product with a strong warranty, offering either a repair, replacement, or refund—but if there’s nothing wrong with the product, you’re entitled to build returns policies that protect your brand from abuse.
Identify and blacklist repeat offenders
When it comes to wardrobing, you’ll also likely find a lot of repeat offenders. If certain customers have a habit of repeatedly returning merchandise that shows signs of wear, you may choose to blacklist them from shopping with your brand in the future after an initial warning. While it’s always worth making concessions for great customers, those who take advantage of your brand aren’t worth fighting for.
With both types of returns abuse, it can also be a helpful deterrent to make sure that customers understand the repercussions of returns fraud.
Of our Consumer Fraud Report survey respondents that never engage in returns abuse, their reasons included ethical/moral guilt (67%), have a fear of the legal consequences (14%), or worry about the impact on the business/retail industry (13%). Additionally, 23% said they’d be less likely to make a return if they knew it had a negative environmental impact.
By providing messaging around your returns process that shows the negative impact that fraudulent returns can have to both your business and the environment, you can make sure that shoppers think twice before ordering products they don’t intend to keep.
Returns fraud is tough to eliminate completely, but with the right technology and policies, you’ll be able to keep it from hurting your bottom line.
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