Return fraud is not just an issue during the holidays anymore. In fact, it’s estimated that return fraud in its many modern forms cost the retail industry roughly $9.6 billion in 2017.
Described as “a crime where people exchange stolen goods or counterfeit goods for cash, use counterfeit receipts or bring back items that have already been worn or used," return fraud can impact luxury fashion brands in multiple ways. In order to protect your brand from the crime, you must first understand what return fraud looks like in 2018.Here are the types of Return Fraud you need to know:
A trend identified in the early 2000’s, ‘wardrobing’ occurs when someone purchases an item, wears it, and then returns it back to the store. The Guardian describes this phenomenon as a way to look “presentable at weddings without having to move into the poor house immediately afterwards.”
A recent National Retail Federation report noted “that an increasing percentage of return fraud is now being done with digital receipts, a form of documentation that is both popular with customers and heavily promoted by retailers: ”Wardrobing results in retailers losing millions of dollars every year when they are forced to discount an item that has clearly been worn.
More recently, US outdoors retailer L.L. Bean announced in January that abuses had forced the company to cancel a longstanding policy of replacing Bean products for any reason, including when the item had been worn — sometimes for years. Speaking to a local paper after the announcement, President and CEO Stephen Smith said abuses had doubled in the last few years to reach 15% in 2017.
“The satisfaction guarantee and the intent of the guarantee is very much still intact. We make great stuff and we stand behind great stuff. But we have had a huge growth in abuse, and fraud, and a misinterpretation of that guarantee.”
Returning Stolen Merchandise
In an age where brands with good customer service and lenient return policies are considered a right by many consumers, brands with the best service are also the most at risk of attracting return fraud.
CNBC described the phenomenon this way: An individual steals merchandise from a store and then returns it in exchange for a gift card or other currency, causing an accumulated millions in lost revenue.
The same CNBC article noted that stores are beginning to take a more aggressive approach to returns: “This could include making a receipt necessary for a return, compressing the window of time within which a return can be made, or requiring the item's original packaging to still be intact.”
It's gotten so bad that even Nordstrom was convinced to tighten its historically liberal return policy.
Buying Authentic, Returning a Fake
A newer and arguably more dangerous type of return fraud threatens the integrity of a brand’s entire supply chain, and that’s when scammers purchase an authentic item and return a counterfeit lookalike in its place.
Called “the switch,” VentureBeat reports that it’s getting harder to detect since “the quality of the fakes [are] getting better.” It’s a lose/lose situation for brands, as thousands of counterfeit items enter the legitimate supply chain, potentially undermining a brand’s reputation and perceived value with consumers.
And not just stores are at risk. Brands using Amazon's "Fulfilled by Amazon" services to sell and ship products have complained that scammers are buying authentic products and shipping back fakes that appear identical to the item described in the receipt. The fakes then get mixed into the brand's stocks of authentic products and shipped to subsequent buyers.
Amazon is fighting back by suing scammers they can catch. But absent a technological tool for identifying and authenticating an individual product, catching them is hard. After all, even experts can be tripped up by today’s high-quality fakes.
What can be done?
One of the repercussions of retail fraud is that stores and luxury brands are forced to create stricter return policies, with the unintended consequence of infuriating loyal consumers. And even tightening return policies is unlikely to solve everything. As Geek.com notes “If there’s a way to scam people for money on the internet, someone is going to figure it out.”
And that’s where a product authentication solution comes into play.
Tagging products with a unique identification code in an alphanumeric, QR or NFC format, as they are manufactured, allows them to be authenticated by anyone, anywhere on the globe, at any time. All they need is a smartphone or access to desktop internet.
It’s a strategy that has obvious attractions for consumers who want to be sure that they are purchasing an authentic product, whose quality and warranty will be backed by a trusted brand. But it also has benefits for brands struggling with return fraud.
In other words, the same unique ID that allows authentication by consumers can be used by brand employees, distributors or retailers to identify which product has been sold or shipped to a purchaser — and to identify when the product returned is not the same.
You can read more about how it works here.