What's Happening?
The 2025 holiday season marked a significant milestone in U.S. retail, with online spending reaching $257.8 billion. However, the season also highlighted a growing issue with returns and fraud. Adobe Analytics reported a 4.7% surge in returns post-Christmas,
with fraud and abuse contributing significantly to return costs. 'Friendly fraud', including false damage claims and serial refunds, now accounts for 15% of return-related losses, costing retailers over $100 billion annually. The average cost of processing a return has risen, impacting retailers' margins. Retailers are now focusing on balancing customer service with fraud prevention, using AI and data analytics to manage returns more effectively.
Why It's Important?
The rise in return fraud poses a significant financial risk to retailers, especially as operating margins remain tight. The challenge is to protect profits without alienating customers, who expect flexible return policies. The use of AI and data analytics to identify fraudulent returns represents a shift towards more sophisticated fraud prevention strategies. This approach could help retailers reduce losses while maintaining customer trust. The issue also underscores the need for retailers to adapt to changing consumer behaviors, such as 'bracketing' and 'buy now, return later', which have become more common.
What's Next?
Retailers are expected to continue investing in technology to improve fraud detection and streamline return processes. This includes using AI to automate trust decisions and personalize return policies based on customer behavior. As retailers refine these strategies, they will need to balance fraud prevention with customer satisfaction. The ongoing challenge will be to implement effective measures without compromising the customer experience, which is crucial for maintaining loyalty in a competitive market.
