Returns as an Asset

Retailers can use the same technology to turn the tables, but only when AI is paired with human judgment. Returns are a critical customer service touchpoint, and how they are handled can make or break loyalty. An Appriss Retail survey found that 75 percent of shoppers factor ease of returns into their purchase decisions, and 72 percent shop elsewhere after a negative return experience. On the other hand, a well-handled return boosts repeat purchases in eight out of ten customers.  

The most effective protection against returns fraud isn’t a fully autonomous system; AI tools combined with human oversight can keep the process smooth for honest shoppers and safe against fraudsters.  

Returns Strategy

Few understand the returns risk better than Happy Returns, the reverse-logistics company acquired by UPS for $450 million in 2024 and now one of the largest processors of retail returns. “Fraud is a game of Whack-A-Mole,” said co-founder and CEO David Sobie. Fraud tactics shift constantly—especially in photo-activated returns like Boll and Branch or mail‑in returns, where retailers often process refunds the moment a carrier scans a package. “If you’re refunding at the time the item is scanned by the carrier, but you have no idea what’s in the box, you’ve left yourself very susceptible to fraud,” he added.

Happy Returns operates a network of over 10,000 personally manned Returns Bar locations that give retailers a first line of defense and a chance to create a positive customer experience. “We’re facilitating in-person, box-free returns for our hundreds of retail partners that are the first control point to ensure that retailers are getting back what they are supposed to get back,” explained COO Juan Hernandez-Campos. “The vast majority of customers get an instant refund at the point of drop off, with the exception of those being the ones flagged through our fraud-protection system.”

The Returns Problem

Returns have always been a cost of doing business. Ecommerce sales have risen since the pandemic when online sales more than doubled from $649 billion in 2019 to $1.4 trillion in 2025. With that growth, returns, both honest and fraudulent, have exploded into a full-scale crisis.  

While the return rate for in-store purchases has held steady over the years at about nine percent, online return rates are now twice as high at 19 percent.  According to a study conducted by the National Retail Federation and Happy Returns.  

Following the trajectory of ecommerce, the returns liability has doubled in the last five years, rising from $428 billion in 2020 to $850 billion in 2025. And fraudulent returns have more than tripled, from $25 billion to $77 billion; roughly one out of every ten returns is fraudulent.  

Those numbers likely understate the problem. Many fraudulent returns slip through undetected. While much time and money is spent rooting out returns fraud, the 90 percent of legitimate returns also carry significant high costs for retailers in reverse logistics, including transportation, processing, repackaging and potential liquidation.

Returns now touch virtually every function in retail—merchandising, finance, supply chain, store operations and customer service. Returns are no longer just a back-of-the-house problem; they can make or break the customer relationship. Retailers need front-end safeguards to prevent avoidable returns and robust back-end systems that can efficiently process the ones that do come back. And when returns happen, the point of return is where retailers have the clearest line of sight to identify potential fraud and deliver a friction-free experience for honest shoppers.

Returns Defense

In response to the rising volume of returns, many retailers have started charging for at least one return method—72 percent in 2025, up from 66 percent in 2024, according to the NRF/Happy Returns survey. But this is a knee-jerk reaction that’s proving less than satisfactory for both retailers and their customers.  That said, over half of retailers report that instituting returns fees has reduced overall return rates and increased exchanges, and 42 percent report a reduction in return fraud. However, on the flip side, nearly half reported more customer complaints, 37 percent believe they’ve lost customers over return fees, 34 percent have lower average order values and 24 percent report a decline in sales.

Some retailers, notably Amazon, Asos and Zara, are taking a more targeted approach by using AI to identify high-incidence returners. These scoring systems identify individuals by tracking return frequency, return-to-purchase ratios, repeated claims of defects and indications of wardrobing to distinguish legitimate returns from policy abuse. Wardrobing, wearing an item once and returning it as new, has become an increasing problem and now also includes electronics, small appliances, jewelry, home décor or seasonal items used briefly and then sent back.

Some online returns are inevitable based on the inconsistencies in sizing and fit. Industry jargon “bracketing” is buying multiple sizes, colors or styles with the intention of returning some. While this isn’t technically fraudulent, it blurs the line between convenience and exploitation. It’s especially pronounced among younger consumers; 53 percent of Gen Z consumers reported bracketing, compared with 36 percent of all shoppers.

Systemic Issues

Returns are the signal of larger systemic problems. Fraud and guilt-free returns are more easily accomplished when returns are made through impersonal shipping.  Sizing and fit are ongoing headaches for online customers and brands. Retailers can mitigate it with more detailed size information, providing more robust customer reviews and highlighting items that have low return rates. Retailers can also incentivize exchanges, but chronic returns are justified by shoppers who say it’s “fine to bend the rules” when making a return. It’s the frontline employees who can transform a return into an opportunity by delivering premium customer service for the nine out of ten shoppers with a legitimate return by upselling or simply being empathetic. They can also be trained to spot the one out of ten whose intent is to deceive.

Happy Returns has provided “Return Bars” located at some UPS stores, Ulta and Staples with trained staff to confirm that the customer is returning the correct item, in the right quantity and with the correct tags. These return experts can also identify the most common and costly forms of returns fraud, including overstating the number of returned items or returning an empty box or “box of rocks.”  After the return passes the first check and enters the system, it is digitally scanned, checking up to 30 variables to further validate the item and assign it a “Return Vision” score that quantitatively measures its fraud risk. If the item receives a medium-to-high-risk score, it is sent directly to the Happy Returns hub for a same-day, AI-assisted audit, checking subtle details such as fabric, buttons, zipper placement and signs of wear. Should it fail that inspection, Happy Returns communicates its findings to the retailer, who ultimately makes the decision whether to accept the return or not.

While other vendors, such as Navar, ClickPost and AfterShip, provide digital portals to generate return labels, initiate exchanges, or track packages, they lack the human interface that Happy Returns provides. This human touchpoint is critical both for customer satisfaction during the often-frustrating returns process and for quickly spotting and stopping fraud.   

The Cost of Business

Returns will always be a cost of doing business. Online commerce has made it easy for customers to abuse shopping and reverse their regret with free returns. The gamble is that free in-store returns will result in additional purchases while on the premises. The opportunity is for sales associates to use the return moment as ambassadors to enhance the customer’s relationship with the brand. However, preventing returns fraud still requires better management. The ultimate challenge for retailers is to recognize that prevention and protection go hand in hand—the retailers that excel at both will build customer loyalty and keep fraudsters in check.