Returns fraud is costing UK retailers 1.3 billion pounds a year: Here’s how to fight back in 2025

Returns fraud isn’t new. But for UK retailers in 2025, it has reached a level of urgency that can no longer be ignored.

In a recent Loop survey, nearly two-thirds (64 percent) of UK-based brands said rising returns fraud was the trend having the biggest financial impact on their business. From wardrobing (wearing and returning) to serial bracketing and exploiting lenient refund policies, brands are being hit from all angles.

The data confirms it’s not just perception. According to Retail Economics, UK retailers are now losing 1.3 billion pounds annually to returns fraud. The British Retail Consortium has also flagged fraudulent returns as a key concern for its members, particularly in apparel and footwear, where abuse rates can reach up to 15 percent of total returns.

Add to that a tough economic climate and ever-higher consumer expectations, and you have a perfect storm. But while UK law strongly protects consumer rights, retailers still have meaningful tools at their disposal to reduce abuse—without alienating honest customers or running afoul of regulations. Here's how leading brands are responding.

1. Work within the law. Don’t get steamrolled by it

The UK has some of the most consumer-friendly legislation in the world. Under the Consumer Contracts Regulations 2013, customers can cancel most online purchases within 14 days of receipt and have another 14 days to return them—giving them a minimum 28-day no-questions-asked return window.

That law exists for good reason. But some customers exploit it to “try before they buy,” wear items and return them, or bracket multiple sizes and styles with no intention of keeping most.

Legally, retailers can’t refuse those returns outright. But you can inspect returned goods and deduct value from refunds if items show signs of wear or misuse. The key is having clearly defined policies and fair, consistent enforcement, especially when the refund is partial.

2. Scrutinise post-window returns with structure and fairness

The Consumer Rights Act 2015 gives consumers a 30-day window to reject faulty goods for a full refund. After that, they’re entitled to a repair or replacement within six months—and in some cases, up to six years.

Many brands are seeing a rise in fraudulent fault claims, especially after the initial return window has closed. To counter this, retailers are tightening how they assess claims:

• Requiring video evidence of damage or defect

• Using serial number verification to confirm authenticity

• Asking customers to return the item before processing a refund

This approach prevents opportunistic abuse while still supporting genuine claims—helping teams make better decisions, faster.

3. Leverage AI to detect risky behaviour - ethically and compliantly

Machine learning has transformed returns fraud detection. Platforms like Loop can flag suspicious behaviours, such as unusually high-value return volumes, repeated abuse of refund policies, or inconsistent return reasons. This allows retailers to automatically route those transactions for manual review, enabling them to take action before losses mount.

However, merchants must be careful with how they use customer data. Under the UK GDPR and Data Protection Act 2018, brands are legally required to:

• Be transparent about what data they collect and why

• Provide customers with access to their data

• Offer a clear appeals process if returns are denied based on fraud detection

Used correctly, AI is a valuable fraud deterrent. But customers must retain control over how their data is used and have the right to challenge decisions when appropriate.

4. Build tiered policies that respond to different risk levels

A common pitfall is treating all returns equally. In 2025, more retailers are applying tiered controls based on the risk profile of the transaction or customer.

Examples include:

• Requiring manual approval for returns over a certain value

• Offering instant refunds only to customers with low return rates

• Limiting the number of returns allowed per customer per year

• Setting stricter policies for high-return-rate items, like seasonal fashion or luxury goods

This segmentation allows retailers to preserve a great experience for the majority of customers while managing the small minority responsible for most abuse.

5. Invest in proactive insight, not reactive fixes

Returns fraud isn’t static. The methods used by abusive customers shift constantly and so must your defenses. Retailers with best-in-class operations regularly analyse return data to identify emerging abuse patterns. For example, some Loop clients have discovered that certain SKUs or geographic regions are disproportionately linked to high rates of wardrobing, prompting targeted policy updates or inspection processes.

The goal is to move from reacting to fraud after it happens, to designing policies that anticipate and prevent it. That mindset shift, towards continuous improvement, is what separates brands that merely cope from those that lead.

A new era of returns management

Returns used to be seen as a cost of doing business. In 2025, they’re increasingly a source of competitive differentiation. Brands that strike the right balance between generosity and accountability will not only protect their margins but also earn trust from customers who value fairness and transparency.

It’s true that the UK’s consumer laws favour the buyer. But that doesn’t mean retailers are powerless. On the contrary, by implementing smarter technology, setting thoughtful policies, and investing in continuous returns optimisation, brands can regain control.

Fraud may be rising… but so is the capability to fight back, ethically and effectively.