Merchandise returns totaled nearly $575 billion last year, including over $90 billion in eCommerce purchases. FinTech CIO Monica Eaton-Cardone advises merchants to take action as organized crime and entitled consumers drive growing return fraud.
(Tampa Bay, FL) October 8, 2018 – The National Retail Federation (NRF) found that merchandise returns climbed from 10.2% in 2015 to 11.3% last year,(1) though Shopify Plus reports eCommerce returns are as high as 20%.(2) NRF data also revealed that fraudulent returns—such as returns of stolen merchandise, wearing and then returning items, and use of counterfeit receipts—rose from 8.8% to 10.8%.(1) Based on 2017 U.S. retail sales,(3) those figures translate to over $573 billion in total returns and more than $90 billion online, resulting in $62 billion in retail return fraud and nearly $10 billion in eCommerce losses. Monica Eaton-Cardone, a financial technology (FinTech) executive specializing in risk management and fraud prevention, notes that organized crime and consumer entitlement both contribute to rising return fraud. Here, she counsels eCommerce merchants on new ways to minimize returns and combat fraud in the Age of Entitlement.
U.S. retail sales grew 4.4% to nearly $5.1 trillion last year, while eCommerce sales soared 16% to $453.5 billion.(3) Unfortunately, returns and fraud are also on the rise, surpassing any proportionate trend. Eaton-Cardone warns that this threat has doubled in the last year alone, diminishing sales gains and retail profitability. According to the NRF, 68.3% of retailers had returns of stolen merchandise and 65.1% suffered employee-complicit return fraud; over half (54%) experienced returns from organized retail crime groups, and 39.7% reported that their customers engage in “wardrobing,” or returning items after use.(1)
Eaton-Cardone, who serves as Chief Information Officer (CIO) of Global Risk Technologies and Chief Operating Officer (COO) of Chargebacks911, says Amazon policies have helped fuel the recent proliferation of returns. By offering free shipping, fast delivery and frictionless—often free—returns, Amazon has raised consumer expectations and created a sense of entitlement. A Shopify Plus survey found that 89% of online shoppers take advantage of return policies and 41% buy items in multiple sizes or variations with the intent to return; in addition, 80% expect free returns and 71% say restocking fees will prevent them from purchasing.(2)
“Many eCommerce merchants have absorbed shipping costs and adopted more lenient return policies to compete with Amazon, and are now seeing shrinking profit margins as a result,” observed Eaton-Cardone. “On one hand, customer-friendly return policies can help boost sales and prevent soaring chargeback costs. But if merchants aren’t taking steps to identify and address return fraud, growing losses could eventually drive them out of business.”
She reminds retailers that while Amazon’s online storefront accounts for 51.4% of sales, 75% of its operating profits come from Amazon Web Services (cloud computing)—which helps cushion the blow of return-related losses.(4) Even Amazon has been struggling with excessive returns and has recently resorted to closing the accounts of shoppers with particularly high return rates.(5)
As the peak holiday shopping season approaches, Eaton-Cardone urges retailers to take steps to minimize returns and fraud. Below, she highlights some of the top return-related challenges for eCommerce merchants and proposes two new ways to mitigate them:
- Employee Return Fraud: Eaton-Cardone has seen cases where customer service reps have issued refunds for items that were never actually returned, sent no-questions-asked reshipments to accomplices who report a missing delivery, or coached collaborators to threaten a chargeback as a way to get a refund without returning the merchandise.
She advises merchants to track return and refund data not only for customers, but also for employees. This enables them to halt orders for accounts suspected of return fraud and identify staff who process abnormally high levels of refunds and reships, particularly for repeat returners.
- Wardrobing and Serial Returners: To deter customers from returning used merchandise, Eaton-Cardone counsels merchants to require original tags and packaging as a condition of refund and to carefully inspect all returns for use/wear before issuing a refund.
She also recommends conducting a cost-benefit analysis on free return shipping. Merchants might consider providing return shipping labels but deducting a shipping charge from each refund, or allowing one or two free returns per customer and charging return shipping on subsequent orders to discourage serial returners from abusing free shipping policies.
“Online transactions can provide a tremendous amount of information about customers and their purchase and return habits. [eCommerce] merchants who track and analyze that data can use it to identify patterns that signal return fraud,” stated Eaton-Cardone.
Eaton-Cardone says while she always encourages easy, low-friction returns as a great way to build loyalty and reduce chargebacks, it’s critical to monitor for policy abuse and outright fraud.
“We all want to maintain high levels of customer satisfaction, but that doesn’t mean giving fraudsters a free pass. The sooner you take steps to curb return fraud, the healthier your bottom line will be.”
Monica Eaton-Cardone frequently discusses fraud prevention, FinTech and security best practices at industry conferences and events. She has been a featured panelist at TRUSTECH, the IATA World Financial Symposium and TRANSACT, and is also available for interviews and future speaking engagements. For more information, visit http://monicaec.com.
About Monica Eaton-Cardone:
An acclaimed entrepreneur, speaker and author, Monica Eaton-Cardone is widely recognized as a thought leader in the FinTech industry and a champion of women in technology. She established her entrepreneurial credentials upon selling her first business at the age of 19. When a subsequent eCommerce venture was plagued by revenue-leeching chargebacks and fraud, Eaton-Cardone rose to the challenge by developing a robust solution that combined human insights and agile technology. Today, her innovations are used by thousands of companies worldwide, cementing her reputation as one of the payment industry’s foremost experts in risk management, chargeback mitigation and fraud prevention. As CIO of Global Risk Technologies and COO of Chargebacks911, Eaton-Cardone leverages her global platform to educate merchants on best practices in fraud prevention and to spotlight the competitive and economic advantages women can bring to the technology workforce. Her nonprofit organization, Get Paid for Grades, invests in students to inspire a new generation of innovators. Get to know Eaton-Cardone at http://monicaec.com.
- National Retail Federation. 2017 Organized Retail Crime Survey; November 2017.
- Shopify Plus. 2018 Holiday eCommerce Returns Guide; September 2018.
- S. Census Bureau. “Quarterly Retail E-Commerce Sales: 4th Quarter 2017”; release issued February 16, 2018.
- Marstrand, Rob. “At This Level, Does Amazon Stock Make Sense?”; Seeking Alpha; September 12, 2018.
- Kaplan, Marcia. “Retailers (Including Amazon) Crack Down on Return Fraud”; Practical Ecommerce; June 6, 2018.