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--:-- Host (Kate Leinbaugh): Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh.
--:-- Guest (Liz Young): Earlier this year, I heard about a big problem for online retailers. Fake returns on a massive scale. They try to put in systems into place. They try to use software. They try to use technology to try to sift through a lot of this. But it's not perfect. And people are trying to exploit that.
--:-- Host (Kate Leinbaugh): All over social media, there are videos of people talking about it. In some cases, people say they're posting these videos to alert the public. There were these online groups and just people online who are systematically taking advantage of the returns policies intentionally to get refunded while keeping the item.
--:-- Guest (Liz Young): Tell them, hey, rep, I have a problem with this order. I didn't receive it. The rep will most likely refund it right away or send a replacement. So let's say I received this pink one right here. Looks really, really nice. But I'm going to claim that I did not get it. And I'm going to get a refund directly to my original payment method. It's like a real-life Robin Hood story happening right in front of you.
--:-- Host (Kate Leinbaugh): There is this underbelly of people who are not just like every now and then saying they sent something back and they didn't and they want $10 back, but instead ordering hundreds of items worth tens of thousands or more of dollars and getting that money back.
--:-- Guest (Liz Young): How easy is it to do fraudulent returns like this? I think it's shockingly easy. What is so shocking about this fraud is that it's really quite simple at its core. In some cases, people are just saying, I never got the package. And it's really hard for the retailer to prove that you did.
--:-- Host (Kate Leinbaugh): And so they send a second one. And then maybe you say, that one didn't come either. Maybe you say, I just want my money back. So now you have two, and the retailer also gave you your money back.
--:-- Guest (Liz Young): Retailers find themselves in a bind, stuck between helping their customers and stopping the fraud.
--:-- Host (Kate Leinbaugh): Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Friday, September 13th. Coming up on the show, the fraudulent return problem that's costing retailers billions.
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--:-- Host (Kate Leinbaugh): Hey business owners, we know you know the importance of maximizing every dollar. With the Delta SkyMiles Reserve Business American Express card, you can make your expenses work just as hard as you.
--:-- Guest (Liz Young): When you order things online, do you order them in multiple sizes or colors? Are you the kind of person who's like, well, pick one thing and return the rest?
--:-- Host (Kate Leinbaugh): Absolutely. I think so many of us have become that way over the past few years or at least that what I tell myself And I definitely will order a few sizes to see what works at home
--:-- Guest (Liz Young): We want that option just like you take something back to the store Absolutely. If you don't give customers that option, retailers have found and analysts have found that customers shop elsewhere.
--:-- Host (Kate Leinbaugh): They want the option that if they get a pair of pants and they don't fit, they can get their money back instead of just having lost that money altogether on something that now they can't even wear or use.
--:-- Guest (Liz Young): Liz, you, me, we all buy things online and then have to return some of them. Last year, Liz says that more than 17% of all online purchases were returned. That's $250 billion worth of goods.
--:-- Host (Kate Leinbaugh): And for retailers, managing all of that stuff is a lot of work. When something's coming back, it might be a wrinkled mess. It might be smelly. There may be stains on it. There's all kinds of problems.
--:-- Guest (Liz Young): And retailers have to individually make decisions about whether they're going to fix those items up or throw them out or donate them, whatever they're going to do with them.
--:-- Host (Kate Leinbaugh): Like, have you heard specifics from these retailers about what they're actually seeing? So they're seeing people mail back boxes of bricks instead of a flat-screen TV.
--:-- Guest (Liz Young): And the point is supposed to be that the bricks are heavy enough that it seems like it's the TV when it's in transit. But when it arrives, it's something else completely.
--:-- Host (Kate Leinbaugh): And that's happening with other things, too, like, you know, throwing your old lawn mowing shoes into a box and sending them back as if they're your brand new new balances just to get a refund.
--:-- Guest (Liz Young): And it is everything from lipstick to a polo shirt to a rug to a Rolex watch.
--:-- Host (Kate Leinbaugh): Can we talk about this thing where people send a box of bricks instead of a flat-screen TV? Why are they getting their money back? Like, why isn't the retailer noticing the bricks before it sends the dollars back to the fraudster?
--:-- Guest (Liz Young): It's a great question. When you return something, you want the money back. You don't want to be waiting, definitely not more than a week, to get that refund.
--:-- Host (Kate Leinbaugh): But while the timing might vary, the point of it is that a customer gets their money back quickly, which retailers believe incentivizes those shoppers to come back and shop again because they've had what they feel is a positive experience.
--:-- Guest (Liz Young): Liz says one brand that's dealing with a lot of these fraudulent returns is PacSun. PacSun is a very popular mall brand. They've been around a long time. They are based in Southern California, and they specialize in everything from beachwear, swimsuits, to casual clothing and T-shirts, to shoes.
--:-- Host (Kate Leinbaugh): And how did they come onto your radar? As a company?
--:-- Guest (Liz Young): Yeah, like in this story. Oh, I was like, I used to shop there when I was... Oh, did you used to shop there? Oh, I'm sure. I'm sure. I mean, just like all of those mall brands, right? Like when you're 12 and wandering through the mall. Spending your tween dollars, yeah.
--:-- Host (Kate Leinbaugh): That's exactly right. My babysitting money.
--:-- Guest (Liz Young): As Liz was reporting out this story, she spoke to PacSun's chief digital and information officer, Shirley Gao. She told me the retailer was seeing a huge uptick in online orders being returned.
--:-- Host (Kate Leinbaugh): So she dove into individual transactions, and that's when she discovered patterns. So, for example, one customer had ordered a pair of shoes, immediately returned them, then ordered the same pair of shoes in two different sizes, then returned those, and on and on kind of scaling up.
--:-- Guest (Liz Young): Gao got suspicious. Something didn't seem right. So she asked the PacSun Return Center to look into it. And that when she and other PacSun executives realized the goods weren't actually being returned.
--:-- Host (Kate Leinbaugh): So used shoes were showing up different shoes were showing up empty boxes were showing up
--:-- Guest (Liz Young): So Shirley went back she looked in to this again, and she found for one shipping address, so for somebody's home address, one address, one quote person or people had used about 20 different email addresses, ordered about 250 different orders in about two months, and they were refunded about $24,000.
--:-- Host (Kate Leinbaugh): Whoa. That's when she started to realize something else was going on.
--:-- Guest (Liz Young): As a veteran of retail, Gao told Liz she'd seen return fraud before, but this was much more systematic and organized.
--:-- Host (Kate Leinbaugh): She said it's really hard because these fraudsters are saying, maybe they're saying the order never arrived. That's hard to prove. Maybe they're saying they did mail it back. Hard to prove. Maybe they're saying, oh, I accidentally put that in the box instead of what it's supposed to be. Hard to prove.
--:-- Guest (Liz Young): So it can be really tricky to track down each individual item and then to prove that it was ill-intentioned.
--:-- Host (Kate Leinbaugh): How big is this problem for PacSun? Shirley wouldn't tell me a specific figure. She said they were still looking into this and tallying things up. But she did say it was having a significant operational and financial impact on the business.
--:-- Guest (Liz Young): And she noted that part of that operational cost is that she's spending a lot of time on this. And other people are spending a lot of time on this and trying to figure out how they can make this end.
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--:-- Host (Kate Leinbaugh): The Jack Welch Management Institute at Strayer University helps you go from I know the way to I've arrived with our top 10 ranked online MBA. Gain skills you can learn today and apply tomorrow.
--:-- Guest (Liz Young): Get ready to go from make it happen to made it happen and keep striving. Visit strayer.edu slash jackwelchmba to learn more.
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--:-- Host (Kate Leinbaugh): The rise of return scams has caught the eye of prosecutors nationwide. Liz told us about one case in particular. The U.S. Attorney's Office in Seattle last year arrested a man in his 20s.
--:-- Guest (Liz Young): He was indicted for orchestrating a scheme to get fraudulent returns that resulted in more than $3.9 million of losses to retailers across the country.
--:-- Host (Kate Leinbaugh): This man, Sajid Al-Ma'araj, ran a fraudulent refunding service on the encrypted app Telegram. He called it Simple Refunds.
--:-- Guest (Liz Young): According to the indictment, his public Telegram channel had over 1,000 subscribers. Simple Refunds used the channel to advertise its services and provide updates on which retailers could be defrauded.
--:-- Host (Kate Leinbaugh): And Simple Refunds charged a commission on those returns. He would share retailer return policies and then he would boast in the group of his ability to get those returns and those refunds without sending anything back.
--:-- Guest (Liz Young): So then he would do this a few ways. He would claim an item wasn delivered or was damaged or he would mail back garbage.
--:-- Host (Kate Leinbaugh): Prosecutors gave one example where he sent a retailer an envelope filled with plastic toy frogs instead of the tools that he was supposed to be sending back.
--:-- Guest (Liz Young): In 2023, law enforcement took action. Alma Arej was arrested and was charged with defrauding over 50 companies on behalf of hundreds of people.
--:-- Host (Kate Leinbaugh): He pleaded guilty in July. In August, prosecutors charged another man who worked with Alma Arej. His operation resulted in $6 million in fraudulent refunds.
--:-- Guest (Liz Young): He pleaded guilty too. Both men will be sentenced in November.
--:-- Host (Kate Leinbaugh): How widespread is this? I think this is pretty widespread from what retailers told me, that this is something they're seeing quite a bit of.
--:-- Guest (Liz Young): I mean, I looked on Telegram and saw quite a lot of these groups. And the understanding I have from talking with PacSun, from talking with companies that specialize in trying to crack down on this, from talking with retail industry executives, is that this is a little bit like whack-a-mole.
--:-- Host (Kate Leinbaugh): So you shut one down, another pops up. So it's a problem that's hard to solve.
--:-- Guest (Liz Young): The FBI has an ongoing investigation into these kind of refund fraud organizations. It's called Operation Chargeback.
--:-- Host (Kate Leinbaugh): For the rest of us, shopping online and returning the pants that don't fit, it might start to become more complicated and more costly.
--:-- Guest (Liz Young): Some retailers are getting more strict, and that could be as simple as reducing the time window that you're eligible for returns.
--:-- Host (Kate Leinbaugh): It could be getting more aggressive about the types of items they'll take back, you know, unwashed, unworn, tags on.
--:-- Guest (Liz Young): It also could mean that they require you to return it in a specific way. Like if you bring it back in the store, it's free. But if you mail it back, we're going to charge you $7 for the shipping label.
--:-- Host (Kate Leinbaugh): So definitely retailers are starting to change their policies. And consumers are paying the price.
--:-- Guest (Liz Young): Correct. There's a tension here. And the tension is you as a retailer want to give your customers a good experience. You want you and I to come back and shop again. You also have to try to prevent people from taking advantage of those benefits that you would give a loyal shopper. And that's really difficult.
--:-- Host (Kate Leinbaugh): That's all for today, Friday, September 13th. The Journal is a co-production of Spotify and The Wall Street Journal.
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--:-- Host (Kate Leinbaugh): The show is made by Catherine Brewer, Maria Byrne, Jonathan Davis, Pia Godkari, Rachel Humphries, Ryan Knutson, Matt Kwong, Jessica Mendoza, Annie Minoff, Laura Morris, Enrique Perez de la Rosa, Sarah Platt, Alan Rodriguez Espinosa, Heather Rogers, Pierce Singhi, Leying Tang, Jivaka Verma, Lisa Wang, Catherine Whalen, Tatiana Zemise, and me, Kate Leinbaugh, with help from Trina Menino.
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--:-- Host (Kate Leinbaugh): Our engineers are Griffin Tanner, Nathan Singapak, and Peter Leonard, with help this week from Sam Baer.
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--:-- Host (Kate Leinbaugh): Our theme music is by So Wiley. Additional music this week from Catherine Anderson, Peter Leonard, Billy Libby, Bobby Lord, Emma Munger, Nathan Singapak, Griffin Tanner, and Blue Dot Sessions.
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--:-- Host (Kate Leinbaugh): Fact-checking by Mary Mathis and Najwa Jamal.
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--:-- Host (Kate Leinbaugh): Thanks for listening. See you Monday.
