Retail Returns Horror Stories: Mitigating Fraud Through Data and Analytics

Go to any retail store and the associates likely have some spooky stories to tell when it comes to returns fraud and abuse. For instance, imagine a box arrives for a returned computer and all that’s inside is a heap of heavy rocks.

Unfortunately, fraudsters and organized retail crime (ORC) groups are only getting craftier in how they execute returns abuse schemes. Many even share new tricks on social media and across dark web forums.

Overall, it’s adding to a concerning rise in retail returns fraud across the country. While associates surely have some chilling tales to reveal, there's more retailers can do to mitigate returns abuse and prevent new stories from being told.

The Growing Threat of Returns Abuse

According to the 2023 Consumer Returns in the Retail Industry Report from the National Retail Federation (NRF) and Appriss Retail, returns fraud and abuse increased by 20 percent in the last year. If that wasn’t scary enough, fraud and abuse totaled a loss of more than $101 billion in 2023.

The report also ranked the leading types of returns fraud that retailer executives said they experienced in the last year. The top four tactics were:

• Wardrobing, or using an item and then returning it when finished. This tactic topped the list with nearly half of all respondents saying they experienced that type of fraud.
• Returning shoplifted merchandise (nearly 45 percent of executives surveyed).
• Returning items that a consumer purchased using fraudulent tender (37 percent).
• Employee returns fraud or employees colluding with a bad actor (28 percent).

These varying methods of returns fraud are all troubling to retailers and it’s only compounded by what store and warehouse associates see on the frontlines.

Tales From the Returns Counter

For starters, “bricking,” or the act of returning a package filled with bricks or rocks instead of the actual merchandise, is a common trick by fraudsters. If you go on social media and listen to retail associates, you'll hear wild scenarios that have hit returns counters, such as:

• Tampered Tags: A fraudster buys a new towel, carefully removes the tag, and restitches it onto a used towel to return, repeating this trick at different stores with various towels.
• Receipt Forgery: Skilled fraudsters use Photoshop to doctor receipts, scanning and altering the price and details to fool the returns associate. Many even share tutorials online.
• High-Priced Fashion Scams: ORC groups purchase high-priced fashion items like trending sneakers online, then claim the items never arrived or were damaged. They request a refund and resell the items on third-party sites for a profit. Another tactic involves returning high-value items, like designer handbags or shoes, which are discovered to be counterfeit upon inspection.

Returns fraud is only getting more sophisticated. Within online forums, many professional returners offer their services to scheme retailers out of money. These professional returners even get ranked and reviewed by users, building brands of their own.

How AI Can Help Catch Returns Fraud

A common denominator in many returns fraud cases is that items and associates aren’t being supported by data and analytics or end-to-end loss prevention strategies.

Fraudsters find gaps in between online and in-store reporting systems to score refunds or file phony claims. When loss prevention is powered by machine learning, the technology assists associates at the returns counter by flagging suspicious behavior in real time.

The artificial intelligence models can help see things human associates cannot, and have a view across a fraudster’s entire purchase and returns journey. With AI and predictive retail analytics, loss prevention teams can identify employees' unusual behavior, highlight inefficient processes happening in stores, and spot larger systemic gaps where store profits are being impacted.

Yes, associates have some good stories to tell, but AI-powered loss prevention strategies can quiet the noise and reduce returns abuse.

Michael Osborne is the chief executive officer for Appriss Retail, a company that reduces losses from retail fraud and theft while protecting the retail customer experience.