Return fraud, counterfeits and other scams: 2025 was a banner year

The year just gone was another banner year for fraudsters. While the OECD and the European Union Intellectual Property Office estimate counterfeit sales at almost US$467 billion, a new report by San Francisco-based Liquidonate spotlights the huge and growing problem of return fraud spawned by e-commerce. Since the volume of online returns is almost three times that of in-store returns, this kind of fraud has flourished along with the boom in overall e-commerce. Citing information from retailers and the National Retail Federation, the report puts an implied value of fraudulent retail returns in the US alone in 2025 at about 15 per cent of the US$850 billion in returned goods value, or a staggering US$127 billion.

Favourite tactics

Some of the favoured tactics employed by the fraudsters are well-known, but they have a penchant for adapting, so it’s a moving target. Technology is both helping in the detection process and undermining it. The major categories of return fraud are ‘wardrobing’ (wearing or using items once or twice before returning them); counterfeit switching (where a genuine item is purchased and kept and a counterfeit is returned); item substitution, ‘gutting’, or return of empty boxes (exploits retailer return systems that involve digital validation rather than human inspection); ‘Keep it’ fraud (exploits retailer return policies that allow the customer to keep a perfectly good item and get a refund as well by claiming it is ‘defective’); bracketing (not really fraud but a big cost-driver, when a customer purchases multiple variations of the same product with the intention of returning those that don’t meet the exact requirements).

Then there are the organised crime rings, otherwise known as ‘Return as a service’, which aggregate fraudulent refunds on behalf of multiple customers and skim a percentage of the proceeds.

It’s on for young and old, but primarily young

But whatever the method employed to defraud retailers, it isn’t a case of a few repeat offenders. According to Liquidonate survey data, one in three customers admits to committing some form of return trickery. The principal offending group are 18-34 year-olds, but the practice is widespread. As the cost of processing returns, including shipping, is so impactful on margins, retailers have employed workflow efficiencies and automated solutions to reduce costs, but these in themselves create openings for fraud, for example, via counterfeit switching and gutting (the term used for removing valuable components from a consumer electronics product and returning it as ‘defective’).

Part of the solution, therefore, is to provide technology assistance at critical human touchpoints in the returns process. This is also an area where AI will be productively involved in identifying high-risk or suspicious returns and singling them out for human inspection.

A banner year for knock-offs

While the return fraudsters were doing their thing, 2025 was also another big year for the counterfeiters. According to a recent OECD/EUIPO report, entitled “Mapping Global Trade in Fakes 2025”, China, Hong Kong and Turkey, in that order, are the origins of the overwhelming majority of fake goods seized by customs authorities at their destination. Collectively, they account for about 90 per cent of the value of all seizures, while 43 per cent of seizures involve clothing and footwear. Leather goods, electronics and watches were also high on the list, but unfortunately, the problem extends across most retail categories.

The popularity of online marketplaces and social media as retail shopping channels has led to a veritable banquet for counterfeiters.

The case of the fake running shoes

Online marketplaces in Asia are literally crawling with fake goods, and the marketplaces themselves don’t seem to be able to do much about it. It isn’t that they aren’t trying, but shopping from marketplaces has become so entrenched that almost everyone seems to be a victim of it.

The marketplaces themselves are well aware of the reputational risk involved, as Shopee’s parent company, Sea Ltd, states in its annual report, “Any public perception that counterfeit, pirated, or otherwise inappropriate or illegal items are commonplace on Shopee, even if factually incorrect, or perceived delays in our removal of these items could damage our reputation and result in regulatory action against us and diminish the value of our brand name.”

True enough, but people I’ve spoken with in the region who shop regularly on popular e-commerce and social media sites all have a war story about being tricked into buying fake goods. That includes me. I am a big fan of Hoka running shoes, partly because of their midsole cushioning, which reduces joint impact and provides a comfortable ride on the road or trail. They typically retail around US$160 in Southeast Asia. One day, I noticed multiple vendors on Shopee offering the same model I wear for around US$30. Intrigued, I bought a pair. It came in a regular blue Hoka box, and the shoes looked immaculate. I checked them over for all the signs of a potential knock-off: the quality of the stitching and the adhesive work, the placement of logos, the colour work, the existence of a serial number stamped on the insoles, the size tag on the inside of the tongue (which said “Made in Vietnam”) and so on. Everything checked out fine when I compared them to my original full-priced Hokas. That is, until I put them on, when I immediately noticed that the midsoles were – how can I put it? – almost nonexistent. Right where the technology should have been, there was little or nothing. Almost certainly fakes.

Sensing that multiple vendors were in on the rort, I went back onto Shopee and bought the same model shoe from a different shop. I repeated the process with four vendors in all. All indistinguishable from the genuine article, but all with the same midsole issue. I emailed Hoka with a link to the site and a photo, asking them to check it for counterfeits, and received an automated reply saying Hoka no longer responds to enquiries by email. So I opened an online chat and, upon stating the nature of the issue and sending the Shopee link, I was greeted by a disinterested chatbot that simply referred me to a checklist of the same red flags for counterfeits that I had already covered. When pressed, the bot remained disinterested, as though I had interrupted its nap. I gave up.

The European Commission has had Shopee on its Counterfeit and Piracy Watch List for four years. It’s a place where Shopee would prefer not to be, but it is in some elite company, alongside Amazon, Meta, Alibaba and Tokopedia, among others, getting a guernsey. The EU doesn’t think Shopee and other sites in China and Southeast Asia are doing enough to remove offending vendors.

There are signs that Southeast Asian governments are stepping up their efforts to address the counterfeit epidemic. In Thailand, for example, the authorities noted an upsurge in the value of seized counterfeit goods during the first 11 months of 2025 and have now redoubled efforts to disrupt the flow, including increased enforcement of notice-and-takedown agreements with the e-commerce sites.

It remains to be seen whether it will be enough: the counterfeiters always seem to be a step ahead, and for brands like Hoka, it’s a disaster.

Further reading: Aeon Mall hits the right note in Japan and Vietnam, but China is still problematic

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