Nearly half of shoppers say they've committed some form of return fraud, and some companies are now deploying artificial intelligence to crack down on them.
A new study conducted by the National Retail Federation and Happy Returns, a logistics company owned by UPS, found that shoppers admit to ordering multiple items with the intention of keeping some (36%), wearing or damaging items before returning them (27%), and even exchanging items for cheaper knockoffs (20%).
It's estimated that nearly one in 10 retail items returned for a refund in the U.S. is counterfeit, creating a costly problem for retailers that ultimately impacts consumers, said David Sobey, CEO of Happy Returns.
“A fraudulent return by a few bad actors has real consequences for all of us as shoppers,” Sobhy said. “That may mean merchants have less generous return policies, or it may mean they introduce fees.”
In fact, the number of retailers is increasing. Addition of fees If you return the item by mail, you may be charged a restocking fee.
One easy way to avoid most of these fees is to return the item in-store or to a designated location.
Companies like Happy Returns are accepting boxless returns from a growing number of retailers at designated drop-off locations such as UPS Stores, Staples, and Ulta Beauty. Returned items are shipped in bulk to a processing hub Something like this in Berks County It saves retailers shipping costs and gives shoppers the opportunity for an instant refund.
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Sobie said the process is already helping curb fraud, where people return empty boxes or return less than declared. But the company is now using artificial intelligence to detect fraudulent returns and withhold refunds by identifying suspicious return patterns and analyzing products to confirm authenticity.
“Sometimes we look at whether this is an email address that has had return fraud in the past, or the time difference between when the item was delivered and when the return was initiated,” he said.
AI screening in the processing hub then compares images of the returned product to those listed in the retailer's product catalog. No matches will be accepted and no refunds will be given.
“Artificial intelligence is enhancing humans' ability to discern whether a product being returned is actually a product sold by a merchant,” he said.
However, AI cannot detect all forms of return fraud, such as when customers return worn or damaged items (known as “wardrobeing”). Still, Sobie said he believes the technology can help retailers address a growing problem.
Competitors like Amazon are also leveraging AI in the return process to alert you to potential fraud.
According to Happy Returns and the National Retail Federation, about $850 billion worth of merchandise will be returned by the end of 2025, accounting for about 15% of all retail sales. Approximately 9% of returns are fraudulent, resulting in an average loss of $261 per item.
