A particular type of retail fraud spikes during the summer.
According to returns management software company Optoro, “wardrobe” is when a shopper buys an expensive item, wears the item with the tag, and then returns the product for a refund. When shoppers sort out their wardrobe during the summer vacation , the product will be selected.
“During the summer and cruise season, from July to September, we see wardrobe and overall return rates spike two to three times, with swimwear alone accounting for 5 to 15 percent of returns,” said the company’s CEO Amena Ali said. “This highlights the fine line between habitual returners and fraudsters.”
According to Optoro, 40% of 18- to 29-year-olds have this type of clothing in their wardrobe.
In the November 2023 Optoro Returns Survey, 30% of shoppers admitted to purchasing items for a specific event only to return them after the event was over.
The challenge for retailers is what to do with items once they are recovered.
“For seasonal items like resort wear and swimwear, inspection and restocking must be done quickly and thoroughly to retain as much value as possible before the end of the season,” Ali said. “Time sensitivity is critical in this fight – ideally, you can spot fraud immediately, or better yet, catch it before it happens.”
Ali warned that if a product is delayed in the return process, that delay could result in significant price reductions or the need to send items to secondary retail channels, such as stores like TJ Maxx, discounters or liquidators.
Ali told CNBC that when a closet item returns to a store or warehouse, the best course of action depends on its value and condition.
“A $10 swim cover-up that’s in poor condition may not be worth the cost of cleaning or repairing, but may go through retrade, donation or recycling channels,” Ali said. “The important thing is that obviously during the summer vacation Items that are worn and returned are not passed on to the next customer – protecting brand recognition and customer loyalty is vital.”
Scott Case, executive director of the National Retail Federation’s Center for Retail Sustainability, said wardrobes can add costs and waste to retailers if the products can no longer be resold. So retailers are taking action.
“Some retailers are addressing this issue by reducing the time consumers have to return items, eliminating free returns, or requiring consumers to return items in-store where employees can inspect items before consumers receive a refund,” Case said.
company likes Best Buy, gap and American Eagle Apparel Use Optoro’s reverse logistics AI software to quickly manage returns, identify fraud and quickly replenish products on store shelves to avoid discounts.
“Time is money,” Ali said. “The faster the product turns around, the less likely it is that it will need to be discounted. Having a smart disposal system can recoup costs and maximize profits.
Steven Lamar, CEO of the American Apparel & Footwear Association, told CNBC that returns, whether due to wardrobe or other reasons, have become a focus for retailers and brands, especially in the era of e-commerce.
“Supply chain technologies powered by artificial intelligence are increasingly being deployed so that consumers can find and enjoy the fashion they want at the right price, the right quality and the right time,” said Lamar. “Anytime As companies build and integrate recycling programs to repair and resell used items, returns have taken on a new role, driving new recycling markets.”
Optoro said that 30% of the cost of returns is shipping costs. Strategies such as third-party delivery locations and no-box, no-label returns are used reduce these costs.
“Artificial intelligence and software can reduce the number of touches for returned products by 50%,” Ali said.
Alibaba said using artificial intelligence in an end-to-end digital returns system can also help retailers identify trustworthy shoppers and identify and restock like-new items at full price.
Optoro data shows that about 95% of goods that cannot be returned for resale will flow to secondary pipelines. Five percent of the product is sent to landfill or donated.
“We’re seeing a wide range of numbers on the recovery, with improvement in some categories ranging from 5% to 45% depending on the brand, but when talking to enterprise retailers, it’s a huge amount,” Alibaba said explain. “One global footwear manufacturer had a large portion of its returned inventory destroyed/recycled and is now able to re-trade it into secondary pipelines through improved means. The segment’s overall recovery was 45%.
The top three categories for Optoro customer returns are kitchen and dining, men’s shoes and women’s clothing.
Return rates vary by category, brand or retailer. Some customers have return rates as high as 40%. According to Statista, clothing tops the list with a return rate of 25%, followed by bags, accessories and shoes at 18%, miscellaneous accessories at 13%, and consumer electronics at 12%.
The average value of merchandise returned by Optoro customers is $85. The maximum value of returned items reported in the survey was $200.
