Returns present a complex challenge for retailers of all sizes, not only contributing to their carbon footprint, but also eroding their profit due to the cost of managing and paying for reverse logistics and, in some cases, leading to fraud. Meanwhile, the use of returns by customers continues to grow in popularity. A report by Shipstation found that almost half of shoppers under the age of 50 had returned at least one purchase within a six-month period in 2022.  The financial and environmental costs associated with this are proving to be monumental. Inside Retail has previously reported that the transportation of returned goods creates about 15 million metric tons of carbon dioxide emissions, with 25 per cent of product returns sent directly to landfill.At the same time, fraudulent consumer activity related to returns has been profit-draining for various brands. A global survey from e-commerce and logistics company Asendia showed that  “return fraud” was costing retailers about $35 billion in the US alone. This data was reinforced by British online retail company Asos, which revealed in its earnings report for the six months to February 28, that six per cent of its customers were responsible for about $200 million (£100 million) in losses.A number of retailers have begun strengthening their returns policies in order to prevent significant losses. Fashion brand Zara was one of a number of retailers which decided to implement a $2.95 returns fee in Australia to discourage product send-backs.Other methods to reduce the growing number of returns include the implementation of artificial intelligence and machine learning tools. For instance, The Iconic’s ‘find your fit’ feature ensures that customers purchase right-sized products, and have a sense of how it will look on them prior to purchase.Joanna Robinson, The Iconic’s chief marketing officer, told Inside Retail that the brand’s primary goal is to ensure that customers have a seamless shopping experience, and are able to find the perfect product. This, in turn, helps to eliminate the need for returns.“The [find your fit] universal sizing tool helps remove the confusion of sizing charts to better assist customers in finding their true size,” she said.  “This is done by asking a series of questions and reviewing previous orders made on The Iconic, which inevitably match customers with a suggested size.“Our creative team also collaborates with brands like Abercrombie & Fitch and Nike, to thoughtfully capture clothing on models of various sizes. This inclusive representation [provides] customers with a realistic view of how the clothing will look and fit on them.”Strategies to detect and prevent retail fraudBut what happens when customers aren’t legitimately returning items because they’re not the right fit, but rather to make a buck? Michael Townsley, professor at Griffith University’s criminology institute, told Inside Retail that “returns fraud” can involve various practices, including wardrobing (returning used or worn items), receipt fraud (manipulating or using fake receipts) and returning stolen merchandise.While specific data on return fraud in Australia is not readily available, the volume of returns have steadily increased over the years – with estimates that retailers lose about $10 from return fraud for every $100 in returned merchandise.Townsley pointed to a few strategies that retailers can implement to deter return fraud, without negatively affecting the customer experience. One such method is a rigorous receipt checking system that validates legitimate receipts through the use of barcodes, QR codes, or unique identifiers.Other potential measures include encouraging staff to request identification – through a driver’s licence or photo ID – as part of the return process, strengthening employee training related to the proper handling of returns, and using data analysis to track return patterns, and flag abnormal behaviour.Charging for returns could possibly erode customer goodwill, and thus is not a good idea, Townsley said.  He added that terminating accounts might not be effective in the long term as customers can open another account, and spread word of unfair or misleading practices.“Identifying repeat offenders is an obvious first step, but what action to take will depend on the retailer,” he said.Deterrence approachRegarding an overall approach, Townsley suggested that retailers deter fraudulent returns by identifying high-risk individuals and groups, and warning them that their activities have been flagged for review and monitoring.Also important, he said, is for retailers to be clear about the potential consequences if they continue their behaviour, and to implement relevant and targeted actions to discourage abusive return practices.“These strategies often include tailored interventions, collaboration between stakeholders, and the provision of support services to assist individuals in making positive life choices,” he said.Townsley added that brands can deploy sophisticated fraud detection systems using AI and machine learning tools. These systems can analyse return patterns, flag suspicious activities, and add another layer of security as part of the returns process.“Retailers can develop or utilise mobile apps that enable customers to scan their receipts for verification. These apps can validate the authenticity of the receipt and flag any discrepancies or signs of fraud,” Townsley said.Helen Scurfield, innovation and development director at Asendia, also noted that IT platforms and analytics can provide critical trends and insights relating to returns.She suggested that brands consider “content checking” as part of the returns process, which can weed out items that are soiled or damaged, and not fit for resale.“Having a content check within a retailer’s returns service will cost them slightly more, but it means they are providing a better, faster refund to the customer so there could be commercial benefits in the longer term. Doing this can be great for customer retention and will deter fraudsters,” she said.ESG strategyParting from the position held by Townsley, Scurfield believes charging for returns can be a useful strategy for retailers as a means of sustaining profitability, as the real cost of returns continues to rise.“I suspect we will start to see more e-commerce brands and retailers charging for returns. Addressing returns starts to play to the sustainability angle too, [as] retailers [are] keen to meet ESG goals and cut carbon,” she said.“There is a consumer education argument. People need to think about their purchases carefully to avoid too many returns. If a ‘green-leaning’ brand is getting 40 or 50 per cent returns, that’s too high and at odds with their customers’ and their own green values.”Meanwhile, Townsley observed that groups are sharing knowledge about retailers’ returns policies and the thresholds of various retailers in illicit marketplaces, which is a growing concern. “I think this is an area of considerable future growth for criminals and should be seen as a strategic threat by any retailer with a online channel,” he said