LOS ANGELES, Dec 18 — Nearly one in 10 U.S. retail returns is fraudulent, costing retailers an estimated $76.5 billion annually, according to Happy Returns, a UPS-owned reverse logistics company. To tackle this escalating issue during the holiday season, the company is piloting its AI-powered fraud detection tool, Return Vision, with major apparel brands including Everlane, Revolve, and Under Armour.
CEO David Sobie revealed the initiative during a tour of Happy Returns’ Los Angeles-area hub. The AI system activates as soon as a customer initiates an online return, flagging suspicious patterns such as frequent high-value returns from the same account or unusual behavior. At processing centers, it scans package contents to detect anomalies, routing flagged items for human audit where refunds can be withheld if fraud is confirmed.
Common return fraud tactics exploit lenient policies. “Wardrobing” involves purchasing clothing, wearing it once (often with tags hidden), and returning it as new. Scammers may switch items—returning counterfeit, damaged, or cheaper alternatives in original packaging—or send empty boxes. Organized groups buy or steal merchandise, return it for cash refunds, or use fake receipts. Bracketing, where multiple sizes are ordered and most returned, can cross into fraud when items are used.
Everlane’s logistics director Jim Green called fraud a “double whammy,” noting lost revenue from unsellable fakes alongside processing costs. With 85% of Everlane’s domestic online returns handled by Happy Returns, the AI aims to protect profits amid surging holiday volumes.
As fraudsters grow sophisticated, blending legitimate and abusive returns, AI offers real-time detection to preserve customer trust while curbing losses.