Amid the cost-of-living crisis in Australia, a significant rise in returns fraud is being reported, with consumers increasingly exploiting retailers' return policies. A recent report by Loop, a return management platform, indicates that 60% of Australian retailers have encountered returns fraud or policy abuse in the past 12 months. This figure is somewhat lower compared to the global rate, which stands at 99%.
This discrepancy between Australia and the global context might be attributed to a shift in consumer spending patterns in Australia, where there is a reduced expenditure on non-essential items and a rise in purchases of essential goods. Despite the relatively lower number of fraud incidents in Australia, the economic impact remains substantial. According to the report, for every $100 in returned merchandise, retailers lose USD $10.40 to returns fraud, which adds to the strain caused by reduced spending on non-essential items.
The report also highlights some of the significant impacts on prominent Australian retailers. Dion Lee and Booktopia have recently faced the consequences of increased returns fraud, and issues have been noted at listed retailer Mosaic Brands as well.
Data from the report unveils that quality disputes were the most common type of fraud or policy abuse experienced by 66% of Australian retailers over the past year. This is followed by practices commonly referred to as 'wardrobing' (returning items after use) and returning items with the intent of keeping them, each reported by 47% of the surveyed retailers.
Retailers generally attribute this increase in returns fraud to the current economic climate, suggesting that the financial strain is pushing consumers to exploit these policies to alleviate their economic difficulties. Specifically, 43% of the respondents believe this to be the primary driver, while 41% consider dissatisfaction with product quality, and 35% cite the intention to temporarily use items as contributing factors.
Challenges faced by Australian retailers also include high operational costs, as reported by 42% of the respondents, and supply chain disruptions, cited by 39%. In contrast, globally, returns fraud (44%) and policy abuse (43%) are the predominant issues.
A considerable number of Australian retailers, 74%, prioritise customer experience over fraud and abuse prevention. Additionally, maintaining a favourable customer experience is seen as the primary challenge when addressing returns fraud or policy abuse by 51% of retailers.
Strategies employed by retailers to combat returns abuse include permanently banning repeat offenders from making future purchases, an approach adopted by 46% of respondents. In addition, 40% of Australian retailers are now focusing on the negative environmental impacts of returns as a deterrent.
Jonathan Poma, CEO of Loop, stated, "Our latest industry data report reveals a notable rise in returns fraud and policy abuse over the past year, highlighting the importance of understanding consumer behaviour not just in purchasing, but also in returns. The challenge is enormous: for every $100 in returned merchandise, retailers lose USD $10.40 to returns fraud. Retailers are implementing sweeping changes to address this drain on their bottom line, and our insights show that a data-driven, customised approach is key to reducing fraud while delighting genuine customers."
The report also suggests actionable measures for retailers to better manage returns fraud and policy abuse. These include monitoring consumer behaviour, educating shoppers on what constitutes fraud, establishing clear consequences for policy violations, and reviewing all returns data to detect deceitful activities more efficiently. By leveraging advanced fraud detection models and implementing return fees, merchants can not only mitigate these issues but also streamline their return processes.
