Return fraud will cost retailers $2.9 billion this holiday

Retailers are expected to lose an estimated $8.9 billion this year in fraud costs related to merchandise return, according to a recent survey by the National Retail Federation.

The key methods of this fraud include: returning stolen merchandise, use of counterfeit receipts and even returning items already worn or used, that are not defective.

Loss prevention executives at 60 retail companies participated in the annual survey.

This holiday season alone, retailers expect 4.6% of returns will be fraudulent. The cost of that crime is an estimated $2.9 billion during the holidays.

“Return fraud comes in a variety of forms and continues to present challenges for retailers trying to grapple with the sophisticated methods criminals are using to rip off retailers,” said NRF Vice President of Loss Prevention Rich Mellor. “Even more troubling is the fact that innocent consumers often suffer because companies have to look for ways to prevent and detect all types of crime and fraud in their stores, oftentimes resorting to shorter return windows and limitations on the types of products that can be returned.”

According to the survey, nearly all (96.5%) retailers polled say they have experienced the return of stolen merchandise in the last year, and 84.2% report that they have experienced the return of merchandise purchased on fraudulent or stolen tender.

Wardrobing – the return of used, non-defective merchandise like special occasion apparel and certain electronics – is a huge issue, with nearly two-thirds (64.9%) saying they have been victims of this activity within the last year. Additionally, 45.6% have found criminals using counterfeit receipts to return merchandise.

Employee return fraud or collusion with external sources is also a big problem for retailers: eight in 10 (80.7%) report they’ve dealt with this issue in the past year.

For the first time NRF asked loss prevention executives about return fraud with the use of e-receipts, and nearly two in 10 (19.3%) say they have dealt with e-receipt return fraud. As online sales continue to grow, 86% say they allow customers to return merchandise purchased online in their stores, and retailers estimate 3.9% of those returns are fraudulent.

“Many shoppers love the convenience and flexibility that digital receipts offer them, and unfortunately criminals are finding ways to manipulate them,” said Mellor. “Return fraud in any form is a serious threat, and we know that retailers have made significant strides in their fight against retail crime, and are continuing their efforts working with law enforcement to address this multi-billion dollar problem.”

When it comes to their company’s holiday return policy, most respondents (83.1%) say their return policies will remain unchanged compared to last holiday season, and 10.2% say they will actually loosen their policies to help ease the process for gift givers and recipients.

The problem of return fraud has forced many retailers to adopt policies which require customers returning merchandise to show identification. Retailers estimate that 13.4% of the returns made throughout the year without a receipt are fraudulent. As a result, nearly three-quarters (73.2%) now require customers returning items without a receipt to show identification. Just 7.1% of retailers require customers making returns with a receipt to show identification, and more than one-quarter (26.8%) say they do not require identification during the return process.