How Fake Returns Are Impacting Businesses Online

Who would have imagined that the modern-day theatre of the absurd would play out on online shopping platforms? Brands who sell their products online are faced with a strange situation. They often receive counterfeit products after having delivered an original one and sometimes they’re downright bizarre. This has impacted the businesses of small and large brands alike. 

“This is a very big pain point for retail merchants. There have been cases where consumers send the wrong product because they have multiple products for return and might end up sending a different product rather than the one that is supposed to be returned. Products being tampered with, stolen, damaged, these are now common scenarios for us,” Arpit Saxena, head of D2C (Brand.com) of global fashion brand United Colours of Benetton (UCB) India told The Core.

UCB India has had several experiences of receiving tampered or damaged products instead of the originally delivered item when the consumers request a return. Counterfeit returns range from plants to alcohol bottles and even live turtles.  And when established brands face this, the situation gets more difficult for smaller brands. 

A Surat-based apparel brand Leemboodi sells sarees, kurtas, and western wear under multiple brand names on online marketplaces like Amazon, Flipkart, Myntra, and Meesho. Hiren Lathiya, the owner of Leemboodi told The Core that when they receive a package during the return process, in the case of saris for example, a new sari is often replaced by an older, damaged, or used sari of a similar colour. The company sells over 20,000 products a month on e-commerce platforms.

The Rise Of Fake Returns

India’s booming e-commerce industry is also driving an increase in reverse logistics through which consumers return products for multiple reasons. Companies bear an additional cost as returns are more expensive than delivering fresh products. The Core has previously reported on this.

When businesses receive a wrong or fake product from the consumer, they claim a refund from either e-commerce platforms or logistics players, depending on the terms of the agreement. “To claim that the product we sent was correct and this return has been counterfeited, we need to keep a backup of the data where we can prove that we sent the right product. Once the proof is submitted, we get some percentage of our claim,” said Lathiya. However, he said that at times the company has to deal with large consignments that make it difficult to maintain data for each product. In such a scenario, claims for fake goods that are returned are rejected, and the company bears a loss.

Leemdoobi's daily sales volume ranges from 15,000 to 20,000 units, with approximately 100 of these falling into the counterfeit category. The typical rejection rate for their claims is between 2% to 5%, leading to direct financial losses for the company.

“Myntra might have a high rate of counterfeit returns whereas the rate on Amazon and Meesho is less. We consider such a scenario as a part of the business cost. Of course, while selling on e-commerce platforms, our profit margins are slightly high, keeping such scenarios in mind,” said Lathiya. 

Argos, a Mumbai-based vintage watches brand, sells 1,000 products every month. Among these, 110 products are returned, with 10 of them being counterfeit returns.

Mohammed Channiwala, chief technology officer at Argos told The Core, “The kind of products that we get in return are cheap watches, shawls, dupattas, waxing strips or sometimes even empty boxes.” 

The company bore the loss and, in certain circumstances, sent the consumer a new one to avoid a bad consumer experience. “Delhivery (logistics company) suggested that we should take a video while unboxing the package that we get in return from the consumer and if it has a counterfeit product, as a part of the policy, they will pay us about 50% of the original product,” Channiwala added. 

Kushagra Verma, founder of ESP Retail, a company that owns multiple brands like bed and bath brand Palatial Lifestyles, herbal lifestyle brand Nature’s Elixir, and pet clothing brand Dale & Musk. He told The Core about how Palatial Lifestyles gets products such as torn clothes, worn underwear, and saris, among others, in the return process.

“Marketplaces were initially very cooperative in reimbursing the claims for such returns, however now they have realised that it's out of their hands due to which they have made their policy so stringent that we can't request reimbursement and often end up ignoring claims altogether. Sometimes a seller’s claim-raising privileges are suspended if they raise a claim too frequently. It leads to loss for the company or we are forced to keep higher prices to cover thin margins.”

UCB’s Saxena said that the reimbursement process is time-consuming and there's a significant amount of effort involved when they receive a counterfeit or tampered product.

“Escalations, investigations, follow-ups, and more. Liability is another factor. For example, if our product worth Rs 25 thousand has been tampered with, then the delivery company will only give us a credit of 4 - 5 thousand credit note, depending on the liability amount that has been agreed but we end up giving a full refund to the consumer,” Saxena said. 

The Reimbursement Process

When a logistics firm, third-party logistics (3PL) company, or a business directly associated with e-commerce platforms encounters counterfeit or damaged goods, they promptly inform the e-commerce platforms to seek reimbursement for the fraudulent activity.

Mukesh Baral, owner of Baral Logistics, which handles consumers who are into kitchenware appliances, home appliances, and beauty products told The Core that the company highlights these issues to the sellers. For instance, if a seller dealing in kitchen products sells and delivers a frying pan to a customer if the product is returned, the seller will receive a knife or a water bottle instead. 

“In such a scenario, the e-commerce platform Flipkart first catches hold of the seller to be responsible for not sending the correct product. After the seller proves with data that they have delivered the correct product, then Flipkart will start investigating with the customer. This can end up being a very reactive approach and the recovery is almost negligible as it is difficult to convince or take some action against the customers.” 

Baral Logistics experiences a return rate of approximately 20-30% per month, with 8-10% of these returns being categorised as mala fide, or fraudulent, returns.

We also reached out to Flipkart for their input but they declined to participate.

Baral said that when they raise such concerns with e-commerce platforms, their first response is that the issue is not related to them and they cannot control this at their end since the transaction is between a buyer and a seller.

“To prove that this is a counterfeit activity on the buyer's end, we submit CCTV evidence demonstrating that when the box arrived at our logistics hub, the product's parts were either missing or another product was sent. After evaluating the two proofs, Flipkart will agree to repay a certain percentage of the merchandise value,” said Baral.

Once the data is shared with the e-commerce platforms, they investigate the incidents, and takes about 15-30 days to reimburse. Baral also said that even though one sends in all the proofs, there are chances that the request could be rejected from the e-commerce platform's end. 

To avoid such a situation, companies need to make sure their products are under insurance but it is a different story for big brands. 

“India is a big country but for international brands like Zara, H&M, UCB, Uniqlo, it is not a big market. The insurance policies are at a local level so implementing something like an insurance or implementing any strategy on a local level is very difficult because these brands operate on a global level, all the decisions are driven globally,” Saxena added. 

UCB India's online sales witness approximately 25% of products being returned monthly, with around 3% of these returns categorised as counterfeit, damaged, or missing. Saxena said, "Although these percentages may seem small, in terms of financial impact, they can lead to losses amounting to crores per month."

How Is It Being Addressed?

To prevent the receipt of counterfeit products in returns, logistic companies provide a quality check (QC) service as part of reverse logistics, typically for an extra fee per pickup. During this process, the delivery person who collects the product from the buyer inspects it in front of the customer. Only if the product is deemed to be in good condition will it be returned to the warehouse.

Prodipto Roy, co-founder, of logistics company QuickShift told The Core, “Various courier partners typically charge around Rs 30 - Rs 50 per order in addition to the return reverse logistics charge that itself is about 1.4 times more the cost of forward logistics.”

During a QC, the delivery person reviews the product description stored in the system, which includes details such as the brand and color of the product. This ensures that they have a clear understanding of the item originally provided. For example, if they are scheduled to pick up a blue t-shirt, they should visually confirm that the item matches this description. If the buyer returns a green t-shirt instead, the delivery person will notice the discrepancy and understand that it does not align with the expected item.

But Leemboodi has not taken a QC service from its logistics partner. “We do not avail of a QC service because in the field of fashion, the trends change rapidly and for the delivery boys to have that knowledge is difficult. The majority of the products that are counterfeit in a way that consumers cut the blouse pieces and send back the saree, and the delivery boy will not understand if a piece has been cut,” said Lathiya.