E-commerce in the UK has reshaped the way consumers purchase goods from retailers, with online sales reaching £117.11 billion in 2024 and accounting for 30% of all retail sales. As we see a shift in consumer spending habits, return fraud has increasingly become an issue for retailers of all sizes, posing a threat to their profitability and longevity.
Rob Rees, Divisional Director at Markel Direct, the specialist insurer of online retailers, explains what return fraud is and provides tips on how e-commerce businesses can protect themselves from falling victim to this crime.
What is return fraud?
Return fraud occurs when individuals exploit online retailers’ returns policies or use unethical tactics to gain money or goods they are not entitled to.
Common types of return fraud
- Counterfeit or incorrect returns: sending back fake or low-value items instead of the original when requesting a refund, often exploiting online retailers’ automated return systems.
- “Wardrobing”: using items (e.g. wearing an outfit to an event) before returning them as new.
- “Bricking”: mainly applicable to electronic components, bricking involves removing valuable components from a device before returning the unusable (or ‘bricked’) item for profit.
- Tracked returns: this occurs when a fraudster purchases an item online, requests a refund and returns the parcel with an item of no value that is the same weight as the purchased item.
If your business also sells products at events or stores, there are in-person forms of return fraud to be cautious of:
- Returning stolen goods: attempting to return shoplifted items without a receipt.
- Price tag switching: swapping price labels to buy an item at a lower price, and returning it at a higher price for profit.
- “Shoplisting”: using a found or stolen receipt to collect identical items in-store and return them fraudulently.
Why is return fraud a problem?
Aside from being a crime, return fraud creates several issues for online retailers. It can lead to:
- Financial losses: return fraud can lead to financial losses for online retailers, particularly when counterfeit, incorrect or stolen items that cannot be re-sold are returned.
- Platform disputes: online retailers often face a significant burden of proof when attempting to demonstrate returns fraud on marketplaces and selling platforms. Should a return fraudster initiate a refund dispute, ecommerce businesses may be required to issue a refund and could also experience negative impacts on their platform account health if the decision is made in favour of the buyer.
- Negative reviews: many online retailers would rather not risk receiving negative reviews or social media posts from return fraudsters, which could deter genuine customers.
- Increased costs: online retailers that have become victims of return fraud may need to implement stricter return policies and procedures, such as charging for returns or increasing product prices to cover losses. However, this can have a negative impact on legitimate customers and cause some to abandon the brand.
- Operational disruptions: return fraud can disrupt operations, creating inefficiencies, especially during peak seasons when returns are frequent and fraud occurrences are likely to be higher as a result.
What are consumers entitled to by law?
Online retailers can’t impose blanket bans on returns, as consumers have legal rights when goods are faulty, misdescribed, or unfit for purpose. In such cases, they may be entitled to a refund, repair, or replacement, regardless of store policy and are entitled to a 14-day cancellation period. However, certain exceptions apply. For full details, retailers should refer to official guidance from the government website.
What can retailers do to combat return fraud?
Here are nine tips to help retailers mitigate the issues that arise from return fraud:
- Set a strict returns policy
Setting a clear, accessible returns policy can help deter fraud. Be sure to specify what condition an item should be returned in, what documents are required, the timeframes in which a return can take place, and which products are eligible. - Use tamper-evident packaging
There are certain types of packaging that can help retailers determine if a return item has been opened, altered, used or worn. For example, some clothing retailers have begun attaching a long ribbon to the front of items making them unwearable unless it is removed, which then stops them being able to be returned. - Introduce return shipping fees
Although controversial in an age of online purchases, implementing reasonable return fees can discourage non-genuine returns. Clearly state these in your returns policy to maintain transparency. Offer free exchanges and only charge for returns for refund. - Offer free exchanges
Encourage exchanges free of charge, alongside ensuring you offer a simple exchange process, can reduce the opportunity for return fraud. A customer choosing a different product rather than a refund will help to maintain your revenue and prevent the customer from having the opportunity to return fraudulently. - Monitor returns and use fraud detection tools
Track return frequency and reasons using your e-commerce platform’s data. This will allow retailers to identify any suspicious or repeat behaviour, providing you with customers who may warrant closer scrutiny. Consider a fraud detection plugin for your online store that will flag unusual behaviour and identify repeat offenders. - Introduce ‘nudge’ emails that act as a warning
When you have identified repeat offenders, it can be beneficial to send them ‘nudge’ emails that state that you’ve noticed a high proportion of their orders have been returned, and seeking feedback on why. Genuine customers are likely to provide useful reasons that will help you – whereas fraudsters may be deterred from making a return in the future upon learning their activity is being monitored. - Train staff
If your business has employees, provide training that supplies the essential skills to spot and address any fraudulent activities. Employees should be educated to understand return policies, trading standards, know the signs of fraud, and follow consistent return procedures. Regular training helps stay ahead of new tactics and any changes to legislation. - Seek legal advice
Unfortunately, there isn’t a ‘one size fits all’ solution to preventing return fraud, and it can help to speak to a legal expert to understand what you can do in the eyes of the law to prevent it. At Markel Direct, we provide our online retailer insurance policyholders with access to a 24-hour legal helpline for any legal concerns or queries they have in relation to returns fraud or other parts of their business.
It’s never been more important for online retailers to protect their business through proactive measures to prevent return fraud. The recommendations outlined above will help mitigate the risk, whilst ensuring that genuine customers remain loyal to your brand.
For more information and further guidance, visit the Markel Direct website.
