This article originally appeared in Just Style on December 20, 2024.
’Tis the season to buy an ugly sweater for a festive party, wear it, and return it the next day. While this act of retail abuse, termed “wardrobing,” may seem innocuous to some, the impact on retailers is much uglier than the sweater.
According to research from Ayden and the Centre for Economic Business and Research (Cebr), returns fraud cost the UK retail industry £11.3 billion in 2023, an average of £1,394,518, per retailer, due to fraudulent returns. Beyond the financial loss, wardrobing causes turmoil inside a retailer’s supply chain and inventory management system. Store staff waste time, effort, and money reprocessing and retagging a returned dress or ugly sweater. What’s more, supply chain systems can be at risk of misrepresenting inventory and demand for items.
Of course, not all fraudulent returns activity falls under the tactic of wardrobing, either, but fashion retailers need to brace for the abuse throughout the festive and New Year’s seasons. Data shows consumers are unabashed about wardrobing, buying dresses or expensive clothes for New Year’s parties, dinners, work soirees, social media family photos, and seasonal family cards. In fact, more than a third of UK shoppers have gone as far as admitting to wardrobing, so retailers need to be on their toes.
And while wardrobing is a primary tactic during Christmas and the festive season, fashion retailers can expect to see a range of returns fraud schemes that run well into the early new year.
Returns fraud for the festive season
Along with a spike in shopping during the festive season comes a spike in returns. Deep into January, general merchandise and fashion retailers field more in-store and online returns, making them susceptible to all types of returns fraud.
Predicting festive season sales for the year, AlixPartners’ research expects apparel sales to increase by 4% year over year, adding to an overall retail industry sales gain for the months of November and December that will near £100 billion. Of course, returns will eat into a retailer’s profits.
Wardrobing can cause retail associates headaches during the season, but it’s not the only issue. Claims and appeasement fraud is on the rise, harming ecommerce operations. In this case, an online shopper falsely claims that the gifts they purchased never arrived or showed up damaged, and they request a refund or replacement item, while never returning their original purchase. In fact, often the fraudsters take the originally purchased item and the newly sent item and return them both to physical stores, causing compounded losses for the retailer.
Claims and appeasement fraud is popular among larger organised retail crime (ORC) syndicates, deploying multiple fraudsters to take advantage of online deals.
Another popular issue during the festive season comes from retailers needing to hire fill-in staff to manage the busy period. Temporary or seasonal associates, who aren’t properly coached or watched, can process fake returns for friends or themselves. The associates use discarded receipts to process false returns or by “sweethearting” and giving away items.
Combined with costly wardrobing activities, apparel chains must do all that they can to protect the financial losses that occur from returns fraud. At the same time, fashion brands and retailers must maintain opportunistic inventory levels for consumers who want to provide gifts to their loved ones. So what’s a retailer to do? Well, a strict returns policy is not the answer.
ASOS and why it’s best to avoid restrictive returns policies
A common reaction from fashion retailers when dealing with rampant returns fraud like wardrobing: enforce stricter and tougher policies, such as a blanket “no receipt, no return” policy. Unfortunately, a strict rule such as this could alienate a chain’s most loyal shoppers.
Notably, Appriss Retail’s recent survey of North American consumers found that 55% of consumers said they avoided buying from retailers with restrictive returns policies, and 31% said they flat-out stopped shopping at retailers or ecommerce stores due to a negative return experience.
On the flipside, the research notes that 70% of respondents spent more money at a retailer after having a positive return experience. In either direction, returns policies have a clear financial impact on a retailer’s business.
Returns policies also draw passionate responses from consumers. ASOS made headlines this year when it targeted potential returns abusers, saying it would deduct £3.95 from a shopper’s refund if that returner keeps less than £40 worth of items. The company’s Fair Use Policy states it’s only targeting small groups of consumers with a history of excessive returns.
The ASOS policy made waves among its shoppers, demonstrating how reactive consumers can be to policies. Still, this is an example of how retailers need to find ways to pinpoint specific abusers and maintain positive relationships with top shoppers.
Personalised returns policies can curb wardrobing
Technology and AI specifically empower retailers to innovate and find ways to reduce wardrobing and returns abuse. With AI-enabled solutions, a retailer can manage a flexible, personalised returns policy that manages each returns experience individually.
In a wardrobing situation, perhaps there’s a shopper who annually looks to buy a dress, wear it, and return it. When that returner comes to a store for their annual wardrobing return, AI-powered technology can automatically read through that shopper’s transaction history. The system can flag to the associate that the consumer is showing suspicious behaviour and recommend an associate deny or approve a claim. The technology supports the associate with anonymised recommendations.
Similarly, a consumer returning several pairs of trousers and sweaters may give a retail associate pause at the returns counter. However, by leveraging AI, the technology can automatically scan that consumer’s transaction history and identify any red flags or suspicious behaviours. The system immediately and automatically alerts the associate with a recommendation to prevent a return or to accommodate a loyal shopper. It’s important to note that the most loyal shoppers tend to also spend the most money with a retailer and return the most.
In both scenarios, fraud-detection technology supports retail associates on the frontlines. At the same time, to keep the holiday supply chain moving, and to prevent more loss to retailers, it’s fair for operations to set limits around how many returns each shopper can make within a certain timeframe. Returns can be so busy right after the festive season, that it can be tough to manage inventory levels and ensure returned items get back on shelves quickly.
Policies and technology combine for a happy festive season
Retailers are on high alert during the festive season. Wardrobing and other returns abuse tactics can be rampant, as associates deal with busier stores and longer lines. Fashion retailers, specifically, depend on having profitable winter months, and returns can drive retail loss. How well apparel and fashion retailers do during the winter and holiday months can make or break a year.
Shaun Callow is Senior Customer Success Manager at Appriss Retail, working with the loss prevention leader for nearly 20 years. Appriss Retail partners with leading brands such as Marks & Spencer, Sainsbury’s, and more, assisting them to identify and reduce retail fraud.
“Retailers prepare for increased threat of ‘wardrobing’, counter fraud with AI” was originally created and published by Just Style, a GlobalData owned brand.