Marketplace Briefing: The rise of Temu and Shein is fueling cross-retailer return abuse
This is the latest installment of the Marketplace Briefing, a weekly Modern Retail+ column about the ever-changing e-commerce marketplace landscape. More from the series →
With fraudulent returns on the rise, brazen consumers are taking to social media to expose loopholes in retailers’ return policies that allow them to pocket a refund while keeping the item they ordered.
In a Reddit post that’s racked up 7,000 upvotes, an anonymous user said they placed an order on both Amazon and Temu for the same product, received the Amazon order faster and then, when the slower shipment from China arrived, returned it to Amazon and pocketed the refund. The same story was regurgitated by a podcast called “Kick it Forward” in an Instagram post that has garnered more than 41,000 likes.
The Reddit post attracted comments from other users who admitted to exploiting similar returns loopholes but with different companies involved.
One person said that when their coffee grinder stopped working, which they originally purchased from Macy’s, they found the same one on Amazon, bought it and then returned the one that didn’t work anymore to Amazon.
Another commenter, a construction worker, said they needed a variety of last-minute materials for a job. A big-box retailer had the items they needed but the products cost 30% less if they ordered directly from the manufacturer. So they ordered from both. After the goods from the manufacturer arrived, they returned them back to the local big-box store.
“Unethical? Yes,” the user wrote. “Would I save thousands in a pinch? Yes.”
These examples might sound niche, but they are a variation of a common form of fraud known as cross-retailer return abuse, which is when a customer buys an item from one store at a lower cost and then returns it to a different store.
Phony returns already cost retailers billions. But the growth of online marketplaces, particularly discount retailers like Temu and Shein, could usher in more of this type of behavior, according to several retail, reverse logistics and return abuse experts. In the long run, that could hurt Amazon while fueling growth for its competitors.
Marketplaces increasingly offer the same goods from the same merchants and brands, as sellers have diversified beyond Amazon to other platforms like Walmart Marketplace and Shopify. That creates more opportunities for shoppers to potentially return goods they bought at one retailer to another marketplace.
With Temu and Shein specifically, they now offer some of the same items as Amazon, often at a cheaper price, in a bid to attract more third-party sellers. The trade-off is that many of these items might take longer to arrive because they are being shipped directly from China or other countries. In contrast, Amazon predominantly relies on a network of local warehouses in the U.S. to ship goods, which means packages arrive more quickly. As detailed on Reddit, some customers are catching on to this, and figuring out how they can use this to their advantage.
“The more ubiquitous marketplaces there are with cheaper, lower prices, the more opportunities there are for cross-retail fraud,” said Jason Goldberg, chief commerce strategy officer at Publicis Group.
Goldberg isn’t alone. Asked if the rise of platforms like Temu and Shein could lead to more cross-retailer return fraud, J. Bennett, chief customer officer at Signifyd, a fraud-prevention software startup that works with major retailers including Walmart and eBay, said, “Absolutely, 100%.”
‘It’s like a black hole’
Historically, cross-fraud retailer return abuse happened offline with brick-and-mortar retailers. The introduction of Amazon’s online business, which built its reputation on offering low prices, accelerated the practice.
“Amazon drove a whole generation of cross-retail fraud, where people could buy something cheap on Amazon and return it at a local store,” Goldberg said.
Signifyd’s Bennett said he sees this cross-marketplace return abuse “all the time.” Such fraudulent returns are up by a “double-digit percentage, year over year,” on average, across his client base.
Yet, despite the ubiquity of this type of fraudulent return, it’s incredibly difficult to identify and prevent. Many warehouses, for example, do not have sufficient technology to confirm whether the retailer received the correct merchandise back and that the returned item was in acceptable condition, according to Kyle Bertin, co-founder and CEO of Two Boxes, a return management software startup.
“Imagine I told you that you have to train a team of 25 people how to effectively inspect and determine the quality for 100,000 different products that you might see over the next week,” Bertin said. “How the hell would you do it? It’s practically impossible.”
Oftentimes, retailers know their return rate — that is, the percentage of overall goods that are returned. But many can’t address the next set of questions, such as how many of those returns came back in damaged condition or what percentage don’t come back at all.
“Retailers have very limited data, and this is just because there are gaps in technology and systems today between brands and between the logistics providers, which makes it very hard for people to have visibility into these issues,” Bertin said. “It’s like a black hole.”
Retailers often process refunds before they inspect returns in order to encourage honest shoppers, which means that phony returns are typically realized after the fact. By that point, it’s too late for a retailer to try and get their money back.
Bogus returns, in general, have been on the rise as more people shop online. Fifty-seven percent of shoppers admitted to engaging in fraudulent returns at least once, according to a report published in August by Narvar, a logistics software firm. This year, return fraud incidents rose 16 percentage points to 52%, the same report found.
Retailers lost $101 billion from return fraud in 2023, or about 14% of all returns, according to the National Retail Federation.
Brands are preparing for a wave of scams during the busy holiday season, a time when return rates usually spike. According to a December report from the NRF and Happy Returns, a UPS company, total returns are expected to hit $890 billion in 2024. Retailers anticipate that nearly 17% of their annual sales will be returned next year.
Consumers, especially younger ones, are more open about abusing retailers’ return policies, but such scams are also playing out on a large scale through coordinated fraud rings that effectively run their own businesses.
“What we see in our data set is that this isn’t one or two people going after their favorite brand and getting a pair of $150 shoes for free,” Bertin said. “These are people orchestrating frauds at scale and making money.”
The Amazon effect
Amazon makes it so easy for shoppers to return products that bogus returns, including cross-retailer fraud, are relatively common on the platform. In addition to Amazon’s easy, free return policy, the e-commerce giant’s sheer size and scope are also a factor, according to industry experts.
“This isn’t even a fraction of what [Amazon processes] in a day, so in the grand scheme of things, it’s relatively small,” said Jordan Shamir, co-founder of retail data analytics startup Yofi. “However, we see this with all of our large retail partners, just generally, where people take advantage by claiming different things that aren’t true.”
About 90% of eligible refunds are issued within five hours after a customer leaves a return at an Amazon drop-off point, according to a company blog post from last December.
“Amazon uses advanced machine learning models to proactively detect and prevent fraud, and we also have specialized teams dedicated to detecting, investigating and stopping fraud,” an Amazon spokesperson told Modern Retail in a written statement. “When bad actors attempt to evade those controls, Amazon takes action and works with law enforcement to hold them accountable.”
Amazon has been known to ban customers who return too many items or pursue legal action against scammers, including a lawsuit filed in July against a group operating on Telegram.
“We do not permit customers to return items they did not purchase from Amazon,” an Amazon spokesperson told Modern Retail. ”In rare cases of abuse or recurring policy violations, we may take appropriate steps to ensure we’re able to continue to provide a great experience for all customers and selling partners.”
Neither Shein nor Temu responded to requests for comment.
Two Boxes’s Bertin said cross-marketplace return abuse will likely continue to become more of a problem. “Unless brands are able to really, really make sure that they have tight controls and dictate pricing equivalency across these platforms, people will exploit it because it’s just very, very difficult to stop all the bad actors,” Bertin said.
Amazon has been accused of suppressing products if those items are sold for less on a competing marketplace, a practice that’s currently at the center of a Federal Trade Commission lawsuit against Amazon.
‘Lose-lose for Amazon’
The rise in cross-marketplace returns comes as Amazon wages a fierce price war against Temu and Shein. Last December, Amazon said it would slash the referral fees it charges merchants who sell cheap apparel items in an apparent bid to fend off competition from Shein. In November, Amazon unveiled its Temu-like discount store Haul, and shortly after, it began discounting items by 50% during the Black Friday shopping period to lure shoppers.
All told, cross-marketplace return abuse stands to be a “lose-lose for Amazon,” according to Brian Delp, president of sales and licensing at textiles manufacturer Himatsingka America.
Amazon may levy so-called “damage allowances” — fees charged by a company like Amazon to a vendor — to recoup the costs associated with the returns. If levied, such fees would negatively impact the factories that produce these goods and potentially sour Amazon’s relationship with them. Meanwhile, Temu and Shein will be able to keep growing their share of sales while preserving their vendor relationships.
On the flip side, the trade rule known as de minimis, which helps retailers like Temu and Shein bypass import duties keeping their prices low, is on the verge of being overhauled in the U.S.
“De minimis changes could nullify the cost advantage that Temu and Shein offer,” said Delp.
Marketplace news to know
- Amazon seems to be trying to crack down on paid reviews, according to Bloomberg.
- E-commerce platform Mirakl has acquired the adtech company Adspert.
- Logistics company Cart.com has purchased Guthy-Renker’s fulfillment operations arm OceanX.