Retailers Face $100 Billion Annual Loss from Return Fraud, Bots, and Coupon Stacking
A recent study conducted by Riskified reveals that retailers are losing over $100 billion per year due to return fraud, bots, and coupon stacking. While some of these practices may seem harmless, when combined with more malicious forms of fraud, they pose a significant financial burden on retailers. Riskified, an AI-powered fraud prevention company, surveyed more than 300 global companies with annual revenues exceeding $500 million to gather insights on retail policy abuses.
The Impact of Retail Policy Abuses
The study found that retail policy abuses, such as return fraud and the use of fake email addresses for promo codes, are on the rise, particularly during the holiday season or periods of high inflation. While 90% of the surveyed companies considered offering generous refunds, return policies, and promotions important for driving sales and increasing customer loyalty, the misuse of these policies has become a drain on profits. Rising costs, increased shrink, and a slowdown in discretionary spending have forced retailers to reconsider the provision of such freebies as they strive to protect their margins.
The Exploitation of Lax Policies
While friendly fraud, which includes practices like using multiple email addresses to take advantage of promotions or buying items with the intention of returning most of them, is often considered a cost of doing business, serial and professional fraudsters are taking advantage of these lax policies. Riskified's study highlighted cases where companies incurred significant losses due to abusive customers creating fake accounts or exploiting promotion codes.
The Need for Selectivity and Customer Histories
To combat these challenges, "smart" companies are becoming more selective about offering freebies. They are leveraging customer histories to differentiate between their best customers, who may receive free returns, and others who may be subject to restocking fees. This approach allows retailers to maintain competitiveness while managing the risk of abuse.
Fighting Fraud with Enhanced Measures
Some companies, like ThredUp, an online seller of pre-owned clothes, have implemented dedicated fraud and abuse task forces. ThredUp utilizes data and enhanced account monitoring to combat bad actors who take advantage of their programs. Additionally, they have introduced innovative features like "Keep for Credit," which offers customers the option to keep items in exchange for store credit, reducing the cost of restocking returned items and encouraging repeat purchases.
In conclusion, retailers face significant financial losses due to return fraud, bots, and coupon stacking. As the industry grapples with these challenges, implementing selective policies, leveraging customer histories, and adopting enhanced fraud prevention measures can help mitigate losses and protect profit margins.
Conclusion: The Implications for New Businesses
The findings from Riskified's study have significant implications for new businesses, particularly those in the retail sector. The $100 billion annual loss due to return fraud, bots, and coupon stacking highlights the importance of robust fraud prevention measures.
Understanding the Risks
New businesses must understand the risks associated with retail policy abuses. While offering generous refunds, return policies, and promotions can drive sales and increase customer loyalty, these policies can also be exploited, leading to significant financial losses.
Adopting Selective Policies and Leveraging Customer Histories
To mitigate these risks, new businesses should consider adopting selective policies and leveraging customer histories. By differentiating between their best customers and potential fraudsters, businesses can protect their profit margins while maintaining competitiveness.
Implementing Enhanced Fraud Prevention Measures
Finally, new businesses should consider implementing enhanced fraud prevention measures. This could include setting up dedicated fraud and abuse task forces, utilizing data and enhanced account monitoring, and introducing innovative features to discourage fraud.
In conclusion, while the potential losses from return fraud, bots, and coupon stacking are significant, new businesses can take proactive steps to mitigate these risks. By understanding the risks, adopting selective policies, leveraging customer histories, and implementing enhanced fraud prevention measures, new businesses can protect their profit margins and ensure their long-term success.
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