Oscar Wong | Getty Images
A recent study conducted by Riskified, an artificial intelligence and automation company that helps retailers fight fraud and boost revenue, reveals that retailers are losing more than $100 billion per year due to various forms of fraud. The study surveyed over 300 global companies with annual revenues exceeding $500 million.
The study found that retail policy abuses, such as return fraud and coupon stacking, are on the rise for some retailers, especially during holiday seasons or times of high inflation. While offering generous refunds, return policies, and promotions are important for driving sales and increasing customer loyalty, the misuse of these policies is causing significant financial losses for retailers.
“Merchants don’t have the time or resources to follow up on claims. In fact, it could cost them more to investigate these claims one by one than to just accept what the customer claims,” the survey said. “Companies that ship products to consumers all over the world may not have visibility into who their last-mile delivery partners are, thus they can’t invalidate claims with any certainty.”
Serial and professional fraudsters are exploiting retailers’ lax policies and taking abuse to a new level. They use tactics such as creating fake accounts or using multiple email addresses to exploit promotions multiple times. In some cases, fraudsters claim they never received an order when they actually did, just to receive a refund and keep the items for free.
Among the companies surveyed, 55% reported that the costs from these fraudulent practices were “very significant” in 2022. Retailers are now realizing the importance of addressing this issue and are considering more selective approaches, such as using customer histories to determine who should receive free returns and who should pay a restocking fee.
To combat fraud and abuse, some companies have implemented enhanced account monitoring and introduced new features. For example, ThredUp, an online retailer of pre-owned clothes, has a dedicated fraud and abuse task force that uses data to identify and prevent fraudulent activities. They also offer customers the option to keep items in exchange for store credit to reduce the costs of restocking returned items.
Overall, retailers are losing significant amounts of money annually due to various forms of fraud. As fraudsters become more sophisticated, it’s essential for retailers to implement effective measures to protect their profits.
Disclosure: Comcast, which owns CNBC parent NBCUniversal, is a co-owner of Hulu.
