GUEST COMMENT Retailers vs. return fees: how can brands balance profits and customer satisfaction?

When British fashion brand PrettyLittleThing (PLT) announced the end of its popular free return policy, it prompted a wave of customer disappointment on social media. Within two weeks, PLT was back in the social media spotlight when some customers discovered their accounts had been deactivated due to unusual returns activity. The backlash sparked a media storm and placed PLT in the headlines.

PLT is not the first retailer to update its return policies. Many well-known brands, such as Zara, Next and Boohoo, already charge a fee for online returns. However, it is the reaction to the updated policies which highlights a bigger issue for the retail industry: the pressure to balance customer satisfaction with the often crippling cost of processing false return claims.

Most UK retailers do not want to clamp down on genuine returns. Instead, they want to deter the abuse of return policies, which contributed to a staggering £30 million in losses due to retail fraud in the past year. The challenge in managing any type of policy abuse lies in identifying who is behind the order or claim – is it a professional fraudster or a regular customer? Without knowing their identity, a retailer may unfairly reject orders or impose return charges, resulting in a poor customer experience and further eroding profits, writes Aviram Ganor, general manager EMEA at Riskified.

Understanding policy abuse 
Policy abuse is a multi-million pound problem in the UK, and recent research revealed a staggering one in five (18%) UK consumers are more likely to engage in policy abuse this summer, citing financial pressures as a key driver. Policy abuse occurs when a customer deliberately exploits a retailer’s terms and conditions for personal gain. Alarmingly, it can be committed by everyday customers, as well as professional fraudsters.

Many retailers saw a large spike in policy abuse during the Covid-19 pandemic, compounded by the reduction of brick-and-mortar footprints and ecommerce boom. Since then, the problem has become widespread. Policy abuse can take the form of false return and refund claims, false item-not-received claims, misuse of promotional codes or reselling goods for profit. A customer may make twenty purchases and commit policy abuse on only one, making it extremely hard to spot.

Managing return and refund abuse
Return and refund abuse is one of the simplest yet most damaging forms of policy abuse for retailers and a major challenge for online brands. It occurs when a customer makes a false claim about a missing product to receive a refund or duplicate item, engages in ‘wardrobing’ – buying clothing to wear once and then returning it – or sends back an alternate item.

In the UK, Gen Z are some of the biggest offenders of return abuse. The same research revealed that 34% of 18-24 year olds admit to falsely claiming an item was not received to secure refunds or replacements while 39% confess to wardrobing.

It is not uncommon for retailers to open a return delivery and discover a substitute item that weighs the same as the original or even a counterfeit version. There is a well-known electronics brand which regularly found a box of matches in the return box instead of the £200 pair of wireless headphones originally purchased. Or, more bizarrely, a small watermelon was once returned to a luxury store instead of a designer handbag because the customer calculated it weighed the same.

On the dark web, policy abuse becomes more sophisticated and scalable. Many online communities share advice on how to exploit policies in popular online stores. This can range from simple tactics such as reusing ‘new customer’ promotion codes repeatedly, all the way through to complicated schemes that navigate delivery tracking measures and enable reseller rings. Since policy abuse can be committed by regular customers as well as professional fraudsters, it is extremely difficult for retailers to find the careful balance between protecting profits and creating great experiences for desirable customers. Moreover, policy abuse inevitably leads to the same outcome, whether committed by professional fraudsters or regular customers – it reduces profit margins and depletes inventory, increasing the risk of loyal customers choosing to shop elsewhere.

Balancing revenue and customer satisfaction
Much like combatting traditional fraud, retailers need a strategy that combines a superior customer experience with measures to prevent financial loss. Modern fraud prevention tools can identify signs of policy abuse without negatively affecting the customer service team’s workload. While most solutions typically focus on account or product-based rules at checkout, more sophisticated tools can analyse each step of the customer journey, including return requests and missing item claims.

As policy abuse affects all retailers in the ecosystem, advanced solutions can identify fraudulent behaviour patterns to benefit multiple organisations in the network. Artificial intelligence (AI) enables retailers to visualise customer identities and behaviours, tailor the customer experience, and customise policy decisions. By conducting real-time risk assessments with AI, merchants can implement more flexible policies tailored to individual customers. For instance, a loyal customer might receive free and flexible return options, while a customer with suspicious behaviour could be required to pay a fee.

Similarly, if a customer makes many purchases and is suspected of committing policy abuse on just a single item, some retailers may decide to overlook this incident rather than risk losing that customer. Having this level of insight to make such decisions is crucial.

The key to customer satisfaction – and protecting revenue – is the right technology and strategy. The wrong strategy will lead to frustrated customers, loss of loyalty to competitors, and social media backlash. The right strategy will boost digital sales by reducing friction, ensure greater product availability for trustworthy customers, and enhance the overall customer experience.

Aviram Ganor, General Manager EMEA at Riskified

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