Fashion victim: death of the changing room and the rising risk of returns fraud

By Aaron Begner, General Manager EMEA, Forter.

High street fashion retail was undergoing immense upheaval even prior to the development of COVID-19. Increased online shopping and the growing success of online-only fashion brands like ASOS were transforming how consumers shopped for apparel.

Nevertheless, one thing that endured in the high street experience was the lure of the changing room. The unique satisfaction in gathering armfuls of clothes to try on was essential to the retail experience, ensuring happy customers left the store confident in the fit and design of their purchased items. Despite significant investment in technology, virtually replicating this aspect of the in-store experience has proved challenging. 

However, the impact of COVID-19 looks set to eliminate this key High Street advantage. As stores began to re-open, the rules designed to prevent virus infection look set to signal the end of the changing room experience. Now, even touching a garment or accessory can mean it must be quarantined if it is not subsequently purchased, creating a process and management issue for retailers and a less interactive buying experience for customers.

With trying-on off-limits and stores restricted in the number of shoppers they can accommodate; retailers are urgently redoubling efforts to improve the digital shopping experience. Fashion brands have made considerable efforts to lure buyers online by launching big discounts, introductory offers and more flexible try-on and returns policies in an effort to persuade conventional shoppers to embrace digital channels. Despite its necessity, this acceleration in digitisation poses several risks and challenges for retailers.

Rise in transaction rates leaves more room for fraud

Gaining new online customers is the aim, and data shows that the drive is succeeding, with new customers now accounting for 20-25% of transactions, up from 10% previously. But a ramp-up in digital volume also generates a greater opportunity for fraudulent customers to slip under the radar. According to Forter’s data, eCommerce transactions increased by 337% between the start of lockdown on 25th March and the end of the UK’s ‘hard’ lockdown on 4th July. 

All the special customer deals and sign-up incentives can also represent opportunities for abusive activities. Illicit coupon code use is tempting to customers who are trying to watch the pennies in uncertain economic conditions. Forter data showed an uptick in promo abuse in industries across the board in May], with the apparel sector seeing double the usual rate of this type of fraud. This abuse eats into profit margins, meaning attracting new customers can come at a high price and without the expected lifetime value once the promotional opportunities end.

We’re also seeing that the general disruption to delivery schedules and longer delivery times is provoking a rise in customers claiming refunds for items that they have in fact received – albeit later than expected. 

Rising risk of returns fraud 

One of the biggest challenges for fashion retailers ramping up online activity is returns management. Customers who want to mimic an in-store changing room experience often order multiple items in different colours and sizes, returning unwanted items free of charge, in a timeframe that suits them. 

As the pandemic unfolded, we’ve seen retailers extending their free returns periods considerably. High Street favourite Top Shop has stretched returns to 45 days, while H&M gives customers more than three full months (100 days) to decide whether to keep an item. Online giant ASOS isn’t far behind, at 90 days. For fashion retailers with a High Street presence ‘buy online, return in store’ (BORIS) has become a key differentiator compared to online-only competitors as stores have re-opened and retailers aim to tempt customers back to the physical environment and potentially upsell or cross-sell at the same time.

A more generous returns policy and greater general flexibility is key to capturing customer loyalty. It helps balance the inconvenience of delays in order fulfilment caused by an increase in online ordering demand and the reduction of the number of logistics staff that can operate safely due to COVID-19. But the risk of returns fraud and policy abuse can create a negative impact on margins and profitability.

Long returns periods for higher volumes of goods – as customers are encouraged to over-order and try-before-they-buy – means that a transaction remains on the balance sheet as a liability for far longer. The value of goods out with customers increases and these items cannot re-enter the sales cycle for a longer period. For ‘wardrobers’ – fraudsters who plan to wear items and then send them back - longer returns periods mean they can wear goods for longer before returning them for a refund.

Non-genuine customers trying to return items without a receipt are also more likely to succeed in a disrupted in-store environment where staff are trying to make buyers feel welcome. In fact, even before the pandemic, Forter data was indicating a 23% rise in BORIS fraud; as stores re-open, retailers need to be alert to increased attempts to dupe staff into issuing refunds.

Seasonality is another key issue. A customer purchasing swimwear in late August may delay returning it until the end of November, by which point demand for beachwear in that market will undoubtedly have changed, leaving the retailer stuck with unwanted stock.

Preventing returns policy abuse is vital if retailers are to protect the bottom line while growing their customer base. We were already seeing evidence of companies getting tougher on customers that exhibit signs of nefarious activity before the pandemic. However, in the current environment, retailers may be less willing to crack down on customers whom they are encouraging to buy more to match the in-store try-on experience. Certainly, full visibility into consumer behaviour is essential if retailers are to distinguish returns abusers from genuine valued customers.

The pivotal role of returns

The pandemic has underlined the fact that the future for fashion retail is omnichannel. Online and in-store purchasing cycles have to integrate seamlessly if businesses are to survive in the new environment. 

This means returns is a key focus of activity for fashion retailers as they aim to tempt more customers to swap the changing room for the front room and buy their apparel online. With customer feedback regularly indicating that an easy returns process is a critical factor in generating repeat custom, offering a no-quibble, seamless system is central to fashion retailers realising their omnichannel ambitions. 

Right now, power is with the purchaser (and by extension, the fraudster) as fashion retailers bend over backwards to make online shopping attractive to a new demographic. A no-quibble, seamless returns process will be the ultimate goal, but increased fraud risk means that, unless retailers evolve their fraud detection capabilities to match, these new customers could come at a high price. 

Comments (0)

Add a Comment

This thread has been closed from taking new comments.

Editorial: +44 (0)1892 536363
Publisher: +44 (0)208 440 0372
Subscribe FREE to the weekly E-newsletter