Billion Dollar Threat: Returns Fraud's Shocking Scale Across 2024-2025

Kiran Banwait

·

April 24, 2025

As an ecommerce brand, you know returns are bound to happen. Building a generous and flexible returns policy is a great way to grow your customer loyalty: After all, you want your shoppers to feel confident in their purchases, and to know that they’ll have a second chance to find the right item if the first product they ordered wasn’t a match.

The problem, though, is when shoppers take advantage of your returns policies. In some cases, they’re simply bending the rules; in others, they’re involved in outright fraud—but the combined impact of returns fraud and abuse can be devastating if you don’t build a proactive mitigation plan. In 2023, returns fraud and abuse accounted for 13.7% of all returns in 2023, amounting to over $100 billion in losses.

Here at Loop, we have an insider’s perspective on ecommerce returns fraud and abuse, and we’re able to identify trends and showcase fraud prevention strategies used by our more than 5,000 merchant customers.

In this article, we’ll take an in-depth look at the state of returns fraud and abuse today—and show you what you can do to protect your brand.

Returns Exploitation Explained: The Most Prevalent Forms of Fraud and Abuse

So what does returns fraud and abuse look like? There’s a big range, starting with well-intentioned customers who just don’t understand the rules, all the way to organized attacks from crime rings that prey upon brands with vulnerabilities in their returns policies. And it’s widespread: Our survey found that nearly 4 in 10 online shoppers say that either they, or someone they know, has engaged in returns abuse or fraud within the past year.

Policy abuse

Here are some common forms of returns abuse to look out for:

Wardrobing

Sometimes, a customer just wants to try a new look out for a night (or an Instagram reel) but doesn’t actually intend to keep the item. When a shopper buys an item with the intention to return it for a full refund, that’s known as “wardrobing.” In many cases, even if the tag is still on, the item is no longer in resellable condition, and will be tagged as “item worn,” leading to a product write-off for your brand. This behavior is incredibly common, with 30% shoppers who admit to doing it saying that it’s a weekly practice.

Bracketing Abuse

You know those customers who order six different sizes to see which one fits best, and then send back all the other items? They may not be duplicitous—after all, they do want to buy a product from your brand—but their behavior can still wreak havoc on your margins. Of the customers who engage in bracketing, 25% do it as often as once a week.

Policy Manipulation

In policy manipulation, shoppers exploit return rules—like splitting items across returns or misusing product tag policies—to bypass restrictions on returns. As a result, they may end up getting refunds or store credit on items that aren’t actually eligible for returns.

All of these types of returns abuse are linked to “serial returners.” While they can be frustrating, their impact is minimal compared to professional fraudsters, who share intelligence about business return policies and work together to take advantage of overly lenient brands.

Returns fraud

Common types of returns fraud to watch for include:

Empty Box Scams

In an empty box scam, shoppers return packages that are missing items or completely empty—or sometimes, they’ll insert an item that matches the weight of the original product, such as a rock or brick. Shoppers participate in empty box returns when they know a brand issues a refund instantly when a product is scanned in, and may not inspect the return to ensure that the product is valid.

Return Not Received

In “Return Not Received” fraud, a customer will request a return and claim to have sent it back to your warehouse, but the merchant will never receive it. In many cases, the customer has provided a fake tracking number unrelated to the order—in which they’re sending an item of minimal value to the same zip code so that it looks like the package is on its way back.

In these and similar types of returns fraud, customers are engaging in fraudulent behavior as a means to keep and resell the original item, leaving your brand to eat the costs.

(Curious about the difference between returns fraud v. refund fraud? Refund fraud involves the shopper being deceitful about the condition of the item they’ve received, and we cover that in more detail here.)

The Real Impact: Returns Fraud Accounts for 6-13% of Return Value

Our internal data reveals that returns fraud isn’t just a small leak—it’s a major revenue drain.

Fraudulent and abusive return behavior continues to impact revenue and operations across all retail categories. We’ve found that an estimated 6–13% of return value in some categories is likely fraudulent, with Apparel, Electronics, and Home Goods among the most affected.

Shutting Down the Loopholes: Smart Detection Systems Catching Fraudsters Before They Strike

In response to the rise in returns fraud and abuse, we’re seeing brands tighten their return policies and set up more controls before granting refunds.

For instance, rather than offering a refund as soon as a package is scanned for a return, you can set up a workflow that requires shoppers to wait for a manual inspection—especially in cases where the returned item is above a certain cost threshold. (On the other hand, if the shopper requests an exchange v. a refund, you can apply the credit towards their exchange right away.)

You can also block return requests or set up manual review for requests that have certain characteristics that may be suspicious, such as situations where a customer requests a return before their delivery has even arrived, or the customer requests a return on every item in their order.

Loop can help with both of these tactics.

By using Workflows, you can set up customized returns policies based on the category of item, the customer segment, or other variables. This enables you to automatically delay a refund until manual inspection for high value items, for example, or to manually review return requests for shoppers who’ve been tagged as “frequent returners.”

And when it comes to suspicious return behavior, we’ve set up a custom algorithm drawn from data across millions of product returns that identifies “high risk” characteristics. Our Fraud Model uses predictive analytics to determine the likelihood that a return request is fraudulent, enabling you to block the transaction or shift to a manual review process before approving the transaction. To date, we’ve successfully identified $0.87 for every $1 of confirmed fraudulent transactions.

By making the most of returns management technology, you’ll be able to automatically detect returns fraud and abuse, and set up controls to stop abusive tactics from hurting your profit margins.

The Evolving Landscape: AI and Economic Pressures Reshaping Returns Fraud in 2025

So what lies ahead in the world of returns fraud this year?

Unfortunately, we see no signs of it slowing down—in fact, we’re predicting that returns fraud will become increasingly common, and we may see more sophisticated strategies at play. That’s due to factors including:

• Advancements in artificial intelligence: Generative AI technology is now available to everyone—including fraudsters. They’re likely to use it to manipulate images, creating fake photos showing product damage; or to submit bulk return requests using stolen identities, for example.
• Continued uptick in digital transactions: As the ecommerce industry continues to grow, so do the opportunities to exploit vulnerabilities in ecommerce platforms and operations. Fraudsters are likely to pay close attention to new ecommerce platforms and tech vendors, and analyze them for exploitation opportunities.
• Increased economic pressure on shoppers: Most shoppers won’t participate in a fraud ring—but a growing number of them may participate in forms of returns abuse like bracketing and wardrobing. As the cost of living continues to increase, they’re more likely to justify such cost-saving behaviors as reasonable, even if it has a negative impact on your brand.

In response, it’s important for your brand to shore up on strategies to combat returns fraud.

These could include:

• Dynamic return rules: Set up customized rules for returns based on criteria such as item condition, category, or value—or even segment your customers, with different return rules for loyalty program members v. new shoppers. You’ll be able to reward your loyal customers with more leniency, while ensuring potential scammers don’t take advantage of your policies. 
• Tighter operational feedback loops: As you adapt your policies, pay close attention to how your changes impact KPIs. For instance, if you implement a return shipping fee, do you see your incidence of wardrobing go down? If you set up a “real fit” tool to help customers choose the right size, are they less likely to bracket their purchases? Small tweaks to your shopping experience and returns policies can help you shape customer behavior for the better. 
• Merchant education on prevention levers: Make sure to set up a robust training program for your CX team, so that they’re aware of what to watch out for around customers’ returns behavior. While it’s important to make occasional exceptions to ensure customer satisfaction, your support agents should be able to identify the warning signs for potential returns abuse, and put a stop to such behavior.

With the right technologies and tactics in place, your brand will be able to set up strong defenses against returns fraud and policy abuse—helping you keep your profit margins high to ensure sustainable growth over the long term.

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