Fraudulent Returns Cost Retailers Millions as PacSun Reports Losses

According to the National Retail Federation and software supplier Appriss Retail, shoppers returned 17.6% of their online purchases last year, totaling more than $247 billion, more than double the percentage of goods returned in 2019

The American retail clothing brand, PacSun witnessed a sharp increase in returns of online purchases earlier this year. This included a customer who returned close to 250 orders which were worth $24,000.

Although the refunds were issued by PacSun, the company never received the actual merchandise to any of its warehouses. On the other hand what the workers of the company found were the different merchandise which were used or not matching the description of the product. This was mentioned by the company’s chief digital and information officer. She also mentioned that other products that were signed to be returned were never received. 

The case turned out to be a small part of a broader pattern of purchases and unnecessary returns for the beachwear, casual clothing and footwear brand based in Southern California. The increased returns amounting to thousands of dollars eventually started affecting the business earlier in May.  

According to the company’s study, many of the fraudulent returns were the result of advice shared on websites, Telegram groups, and other forums aimed at syphoning money through the retail returns procedure. 

Online returns have skyrocketed for retailers across the country in the last four years, thanks to liberal returns policies implemented to entice customers during a pandemic-driven spike in e-commerce. Consumers have become accustomed to ordering products online in multiple sizes and colors, then returning what they do not like. 

According to the National Retail Federation and software supplier Appriss Retail, shoppers returned 17.6% of their online purchases last year, totaling more than $247 billion, more than double the percentage of goods returned in 2019. 

The companies jumped back to handle the growing business as returns became an entrenched part of the online business. Last year, United Parcel Services took over Happy returns, one of the specialised operators for a total of $465 million. 

Frauds have found a new tool for crime with the ease of shipping products back to the e-commerce website. The convenience exploits the online environment wherein there is no interaction of the buyers with the store employees.  

The intensity of the frauds is getting stronger, more ambitious and organised as per PacSun’s experience. The loss amount was not disclosed by the retailer to fraudulent returns so far this year, but Gao said the scheme is having “a significant impact financially and operationally to the business.” 

The National Retail Federation projected that more than $100 billion in merchandise was returned fraudulently in the United States last year, accounting for around 13.7% of total returned goods received by retailers in 2023. According to the industry trade body, the number of fake returns was more than double that of 2020, and its approach will change in 2023 to include consumer returns data from Appriss Retail.

In certain situations, fraudsters replace designer goods with knock offs and return boxes full of bricks or other filler instead of the actual things. Others are using shipping labels to get a refund simply by returning an empty envelope. 

Merchandises worth more than $100 million were returned fraudulently in the US last year according to the estimation of the National Retail Federation. This amounted to almost 13.7% of the overall returned goods retailers received in 2023.  According to the industry trade group this number was more than twice the level of bogus returns in 2020 which eventually changed last year. 

In certain situations, fraudsters replace designer goods with knock offs and return boxes full of bricks or other filler instead of the actual things. Others are using shipping labels to get a refund simply by returning an empty envelope. 

According to industry analysts, those strategies, which include information on how to take advantage of individual stores’ return policies, are being shared via websites and anonymous-messaging apps such as Telegram. 

Some sites inspected by The Wall Street Journal advertise “refunding services” that can provide customers with full refunds in days without actually returning products. Several groups detail large retailers’ return policies to show customers what they can get refunded.

A representative for Telegram, the Dubai-based messaging and social-media app, stated that its moderators strive to delete anything that promotes fraud, but that the program’s global development to almost 1 billion users “has caused growing pains in its content moderation.” He stated that Telegram will prioritize increasing moderation this year.

The retailers identified by the refunding services sell stuff ranging in price from a few dollars for fast fashion to thousands of dollars for electronics or luxury goods.