Are free returns a hidden growth killer in ecommerce?

With £11.3 billion lost annually to return and refund abuse, the true cost of free returns extends far beyond customer convenience.

Let’s explore why offering free returns might be holding back your business and what you can do to prevent losses from friendly fraud.

Should free returns still be the norm?

In the UK alone, 45% of shoppers admitted to return fraud or policy abuse.

This amount of friendly fraudsters has a significant impact on both retailers and society:

• Financial Impact: UK retailers spend an average of £20-£30 per item when processing returns and refunds. This cost includes postage, restocking, and lost sales, which can quickly erode profits.

• Fraudulent and Abusive Returns: Friendly fraud is rising, with an increasing number of consumers taking advantage of lenient return policies. 90% of online retailers believe that policy abuse is a priority problem for them, as it is impacting the business overall profitability.

• Environmental Consequences: On average, customers return up to 30% of products bought online, with up to 24 million metric tonnes of CO2 emissions attributed to ecommerce returns each year, leading to long-term environmental impact.

In response, major UK retailers like ASOS, Boohoo, and Zara have shifted their policies, either by charging for returns or implementing stricter return criteria. Additionally, many merchants are turning to fraud and risk management solutions that help detect and deter friendly fraud, especially during peak sales periods like Black Friday and the holiday season.

How to protect your Shopify Store from return-and-refund fraud.

Holiday season is here - did you know that fraud spikes 15-20% in holiday season vs. other times in the year?

To prevent returns fraud and shield your profit margins, consider these best practices:

1. Collaborate Across the Ecosystem: Work with other merchants to share data on abusive return patterns and identify repeat offenders across the e-commerce ecosystem. This collaborative approach can enhance fraud detection for all.

2. Treat Customers as Individuals: Implement 360-degree customer intelligence, enabling you to assess individual shoppers' fraud risk and offer personalized experiences for trusted customers. Tailoring policies help provide a seamless experience while guarding against fraudsters.

3. Streamline Refund Processes: Automate refund decisions for trusted customers, reducing manual work and enhancing customer satisfaction. Use consumer intelligence to make quick, informed decisions on refund requests, ensuring that abuse is detected and managed effectively.

4. Provide Clear Transaction Details: Help customers recognize and recall their purchases with clear, consistent order details on statements, which can prevent accidental chargebacks and reduce instances of friendly fraud.

5. Invest In Friendly Fraud Prevention Solutions: There are many solutions that help you assess consumer-friendly fraud risk in real-time.

By proactively managing returns, collaborating within the ecosystem, and investing in smart fraud-prevention tools, Shopify merchants can protect their revenue and reputation.

Managing consumer's expectations around free return

Initially, offering free returns helped brands gain customer trust, increase sales, and compete in a crowded marketplace. However, as more brands adopted this policy, consumers began to expect it as a standard.

This shift in expectations has left retailers bearing the financial and logistical burden of returns, often without the loyalty or sales uplift originally promised.

Now, with peak shopping seasons like Black Friday around the corner, retailers are re-evaluating if free returns are worth the cost.

As free returns become increasingly unsustainable, retailers must find ways to reset customer expectations while still providing a positive shopping experience.

The ‘all or nothing’ mentality

At this point, Shopify merchants are wrestling between maintaining loyalty and preventing fraud.

And they don’t know how to manage both effectively.

Here are two scenarios:

• Scenario 1: merchants allow free refunds to make consumers happy, but end up losing money.

• Scenario 2: merchants want to protect their shops and put up regulations, but deliver worse customer service and decrease loyalty.

It is essential that merchants find the sweet spot between the two scenarios.

A friendly fraud prevention solution can help you find the sweet spot, and get ahead of the competition by personalising your relationship with each consumer but preventing return-and-refund fraud losses.

Are you proactively mitigating the impacts of friendly fraud in your business? Find out now!

For a more detailed analysis of how your business could be affected by friendly fraud, take Your Shopify Store Friendly Fraud Impact Assessment and get ready for a more secure peak season!