Counterfeit Returns are a Silent Crisis for Retailers this Holiday Peak Season
For retailers, the peak holiday season is the anticipated time of year when sales numbers peak, as the holiday spirit tempts consumers to loosen their wallets on a variety of product promotions. While reports and anecdotal evidence from the retail industry continue to reflect a healthy rise in the value of total sales with each passing year, it often hides a distasteful metric—the specter of product returns.
While returns are a nightmare for retailers, the post-peak season often sees product returns making up a higher percentage of total sales than the rest of the year. On average, a larger portion of the peak season purchases are sent out as gifts, and gifts tend to have a higher return rate as recipients may find them unsuitable, redundant, or simply not to their taste.
Hidden within these otherwise routine product returns are instances of deliberate fraud, where scammers replace original items with counterfeits, attempting to exploit the returns process for their gain. For returns scammers, the peak holiday season is quite like a crowded metro station for pickpockets — the perfect opportunity to strike, with chaos and volume making it easier to go unnoticed.
Counterfeit returns, in particular, tend to hit businesses dealing with higher-ticket items the hardest. Think of expensive electronics, luxury fashion, jewelry, and accessories. These are prime targets as they provide the best ‘bang-for-the-scam’, but they are also the worst products for retailers to be cheated on, as a single counterfeit item can wipe out profits from multiple legitimate sales.
The rising threat of counterfeit returns
Counterfeiting has become an industry, particularly targeting high-end luxury and fashion items. People create lookalike products and then return the counterfeit version, making it extremely challenging for businesses to detect and prevent fraudulent returns.
To stem the tide of fraud, retailers must tighten returns procedures — right from their returns policy to inspection. Over the years, businesses have invested heavily in order fulfillment to ensure they are equipped to handle and ship out large volumes of new orders. However, they often do not apply the same level of focus and investment to managing returns. In scenarios where retailers are hit with a returns tsunami, like a post-holiday season, the lack of a proper reverse logistics pipeline can result in returns piling up, leading to mistakes that let faulty or counterfeit products slip back into the inventory.
Many companies struggle to process returns quickly and accurately, and so they often issue credits just to keep the customer happy. In these cases, returned items are set aside and processed much later, if at all. By that point, if the product is counterfeit or tampered with, there is little chance of tracing the fraudster or recovering the financial loss.
The situation gets more challenging for retailers that offer omnichannel solutions, as bad actors might buy a product online and return a counterfeit version to a physical store. In this case, the store staff may not have the same expertise as the warehouse teams, who are more accustomed to handling and inspecting products.
Process-driven safeguards to combat returns fraud
Fraudsters actively exploit gaps to game the system, exploiting inconsistencies in processes, skill sets, and return protocols. From a process and technology perspective, companies can focus on key areas to address this challenge, starting with a better understanding of their customer base. Many brands selling luxury or high-end products tend to have loyal customers. For example, someone buying from Tiffany’s or Ferragamo is likely to be a repeat customer rather than a one-time buyer.
With that in mind, brands could develop return policies tailored to customer history. There could be stricter safeguards for first-time customers who attempt to return a product compared to loyal customers with a proven purchase history. This approach allows companies to balance fraud prevention with maintaining trust and convenience for repeat buyers.
If someone attempts a counterfeit scheme, they are unlikely to be repeat buyers. Instead, they’ll try to capitalize on a single opportunity, often at scale. For example, a first-time buyer looking to return a large purchase order could be a red flag worth investigating.
Companies can leverage data and technology to add safeguards for customers initiating returns. For example, they can ask them to upload photos of the product being returned, including the unique product identifier, its packaging, and condition. Pushing such checks can help retailers better verify the legitimacy of the return before triggering any refunds or credits.
Equipping teams to detect and prevent counterfeits
Once a product is physically returned, the focus shifts to training employees to identify counterfeit items. This involves providing clear work instructions, using reference images to highlight authentic product details, and showing employees where to look and how to verify specific aspects of the product—such as logos, stitching, or serial numbers. It is also important to establish guidelines for when to escalate a return if employees are unsure about its authenticity.
Such checks gain more significance during peak seasons, prime times for return fraud. A structured workflow helps identify counterfeit items more effectively, breaking the process into clear steps: what to look for, how to verify authenticity, and when to escalate for further review.
In some cases, additional approvals can be built into the process. For example, after an employee conducts a verification inspection and deems the product authentic, a second approval step could involve someone more senior before a refund or credit is authorized. This acts as an added safeguard.
If an employee is unsure about a product, the system should allow them to flag it for further approval rather than forcing them to make a final decision. This avoids reliance on a single-threaded process, where employees, especially when busy, may be inclined to move returns along quickly without thoroughly inspecting and verifying the items.
Ultimately, managing returns while ensuring counterfeit items do not reach the inventory is a process that requires exhaustive verification and a lot of patience. As with the fulfillment process, obsessing over the consumer — their buying habits, taste, and return patterns — will eventually help weed out the bad actors in the buyer ecosystem. Ensuring thorough verification of returned items before they re-enter inventory while maintaining the peace of mind of the returning customer enables retailers to strike the right balance between customer satisfaction and fraud prevention.
