Return fraud could be raising the prices you pay

Retailers are using robots and artificial intelligence to identify fraudulent returns, speed up refunds, and reduce losses that can ultimately affect customers.

Buying something online, using it once and then returning it may seem harmless. But return abuse and fraud cost retailers billions of dollars each year, potentially leading to higher prices and stricter return policies for customers.

Channel 2 Consumer Adviser Clark Howard visited a Happy Returns warehouse in Valencia, California, to see how the company uses robots and artificial intelligence to process returns and identify possible fraud.

“People who shop online have no idea how complicated it is when they say, ‘Eh, I don’t want this,’” Howard said.

Juan Hernandez-Campos, chief operating officer for Happy Returns, said processing an online return involves multiple steps.

When products arrive at the warehouse, workers unload them and send them to sorting stations. Employees scan each item’s QR code and place the product on a robot, which takes it to the correct box for return to the retailer.

According to Happy Returns, a sorting process that once took days can now be completed within an eight-hour workday.

Using AI to identify suspicious returns

Hernandez-Campos said the facility pays particular attention to what the company calls “decoy returns.” This happens when someone buys an item but returns a similar, less expensive product instead.

Happy Returns said most fraud is caught at its drop-off locations. Items that reach the warehouse and are flagged as suspicious are sent to an AI fraud detection station.

Workers photograph and scan the products, allowing the technology to identify details that an employee at the drop-off location may not have noticed.

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The AI system can flag an item as a suspected mismatch, but a worker makes the final determination about whether the return is fraudulent.

“Fraud is a bigger problem than you might think, one in 10 returns,” Hernandez-Campos said.

He said an inefficient returns process can ultimately affect shoppers.

“Consumers will pay for it if this process doesn’t work,” Hernandez-Campos said.

Retail losses connected to return fraud and abuse can contribute to stricter policies, return fees and higher prices. Retailers may also restrict or ban customers who repeatedly violate their return policies.

Small businesses face return abuse

Return abuse does not only affect major retailers.

Juli and Scott Chapin own CakeSafe, a small business that makes reusable cake-delivery boxes. They said some customers have used the company’s products and then returned them.

“People will use our disks and then send them back, and there’s buttercream on them, there’s hair on them,” Juli Chapin said.

The business has changed its return policies and, at times, added restocking fees because of the problem.

“It’s just disappointing,” Chapin said. “It’s disappointing in humanity when that happens.”

Although the company has a good relationship with many of its customers, Chapin said someone ultimately absorbs the cost of a dishonest return.

“There may very well be a cost that somebody is picking up because you are being dishonest about something,” she said.

A cheaper price for giving up returns

Howard said some retailers are experimenting with another approach: offering lower prices to customers who agree that an item cannot be returned.

Amazon is testing that model through its Woot site, Howard said.

If shoppers are certain they will keep an item, Howard said accepting a no-return deal could help them get a lower price upfront. However, customers should understand that they are giving up the ability to return the product if they change their minds.