UK retailers are facing a growing crisis as returns fraud and policy abuse reach unprecedented levels, according to new data from return management platform Loop.

The research reveals that 91% of UK retailers have seen an increase in fraudulent or abusive returns over the past year.

The issue is significantly impacting the bottom line, with returns fraud identified as the top challenge for retailers, followed closely by policy abuse.

These issues, combined with rising operational costs, supply chain disruptions, and advertising expenses are creating a perfect storm for the industry.

The study found that nearly half of retailers believe shoppers are intentionally exploiting return policies to improve their financial situation, driven by the current economic climate.

Other common motivations for fraudulent returns include using items temporarily and dissatisfaction with product quality.

The most prevalent types of fraud include returning ineligible items, disputing product quality (often falsely), and wardrobing - returning worn items as new.

Despite widespread recognition of the problem, according to Loop, less than half of retailers feel their fraud prevention measures are effective.

Balancing customer experience with fraud prevention is a major challenge.

While many retailers prioritise customer satisfaction, the financial implications of unchecked fraud are forcing a rethink.

Common responses to the issue include tightening return policies, offering store credit or exchanges instead of refunds, and introducing return fees.

“The challenge is enormous: for every $100 in returned merchandise, retailers lose $10.40 to return fraud. Retailers are implementing sweeping changes to address this drain on their bottom line, and our insights show that a data-driven, customised approach is key to reducing fraud while delighting genuine customers,” said Loop CEO Jonathan Poma.

“Leveraging tools like advanced fraud detection models and return fees can provide merchants with the resources they need to not only mitigate these issues, but also improve their return processes as a whole."

The report offers actionable advice for retailers, including analysing consumer behaviour, educating customers about fraud policies, and leveraging data analytics to identify suspicious patterns.

By taking a proactive approach, retailers can mitigate the financial impact of returns fraud and improve overall return processes.