How Returns Abuse Impacts Retailers' Bottom Line

By Aaron Begner, EMEA GM at Forter

Accompanying the significant growth in ecommerce over the past 12 months, is the need for retailers to manage the impact of a growing array of fraud and abuse challenges. One type of fraud that can easily fly under the radar is the abuse of a merchant’s returns policies.

Returns abuse can be difficult to detect and prevent for retailers, as often it is a challenge to identify fraudulent behaviour vs. a ‘usually-good’ consumer trying to bend – but not break – return policies. Therefore, it’s often a challenge to identify how returns abuse actually affects retailers. Here are three of the biggest ways that returns abuse negatively impacts business.

Lost Revenue

The most obvious effect that returns abuse has on a business is lost revenue, which can be significant. Research indicates that returns abuse may be costing retailers up to $15 billion per year. When fraudsters purchase items with the intent of abusing returns policies, the retailer makes no profit. Furthermore, it stops legitimate customers from purchasing the items they want, as fraudsters who don’t want the items are moving them around.

Various types of returns abuse can profoundly damage retailers’ bottom lines. Some tactics, such as shoplisting, where fraudsters try to obtain a refund for a list of products listed on a perfectly valid receipt, yet that they never purchased to begin with, can significantly impact retailers’ bottom line.

Increased Operational Costs

Returns abuse doesn’t only affect revenue pertaining to the products themselves. There are also operational costs to consider. An increase in returns abuse will often lead to more consideration being put into checking every return, for signs of abuse taking place. This can range from missing tags to damage or wear on the product. This process can be time-consuming, meaning more resources might be necessary to continue operating in an efficient manner. Handling and warehousing costs can also begin to increase, with returned items becoming significantly less valuable.

A Poor Customer Experience

As returns abuse continues to increase, many retailers will feel pressure to tighten their return policies. This could range from reducing the allotted time for eligible returns, to only issuing store credit instead of cashback. In some cases, more extreme measures such as requiring a restocking fee for more expensive merchandise will be taken.

While these are all effective ways to help diminish the effect of returns abuse on retailers, they can also have an adverse effect on a retailer’s customer experience. If loyal customers have become accustomed to a more flexible and forgiving return policy, they could be taken by surprise when it’s more difficult for them to return their items.

Ultimately, it can be tricky to balance the two. Returns abuse negatively affects retailer revenue and the overall business, but so does a poor customer experience.

The Negative Impact of Returns Abuse Cannot Be Understated

Returns abuse is often overlooked. It can be difficult to detect, but significantly impacts revenue and operations. Because stricter return policies may restrict loyal customers, the reputation of a retailer’s business can be affected. Poor customer experiences can lead to bad reviews and a loss of current and potential customers. Because of this, returns abuse prevention should be a top priority for all retailers.

With this information in hand, retailers can get a better understanding of how returns abuse affects their business and why they need to put a prevention plan in place, as soon as possible.