Retailers estimate $2.2 billion in 2015 holiday return fraud, up from 2014

On top of less than stellar holiday sales, retailers also are expected to see return fraud grow from $1.9 billion in the 2014 holiday cycle to $2.2 billion this year, according to the National Retail Federation.

The industry estimates that 3.5% or $9.1 billion of their holiday returns processed this year will be fraudulent, up slightly from the estimated 3% reported last year. Holiday sales in 2015 were lukewarm overall according to the early estimates with its share of winners like J.C. Penney (3.9% comps) and losers like Macy’s (-5.2% comps) who each reported a change in fortune in the 2015 holiday season.

“Return fraud remains a critical issue for retailers with the impact spanning far and wide, in-store and online,” NRF Vice President of Loss Prevention Bob Moraca recently noted in a statement. “While technology has played a significant role in deterring many in-person fraudulent transactions that would have otherwise gone unseen, there is little that can be done to prevent a determined criminal who will find a loophole one way or another. When it comes to retail fraud, retailers can build taller walls, but criminals continue to find taller ladders.”

The fraud concern voiced by 91.9% of retailers surveyed relates to the return of stolen merchandise. Wardrobing, or the return of used, non-defective merchandise, also presents a challenge for retailers with 72.6% of those polled having experienced wardrobing in past year, on par with last year’s 72.7%, according to the NRF release.

With the growing use of e-receipts by retailers there is a rise in fraud in this area. The survey found 33.9% of those polled said they have experienced return fraud with use of e-receipts, up from 18.2% last year.

“Retailers have the difficult task of providing superior customer service by always giving the benefit of the doubt to their shoppers when it comes to returns, while simultaneously working to make sure they protect their business assets,” Moraca said. “We expect retailers to continue their tried and true ways of combating fraud through increased usage of identification verification, as well as seeking new and innovative approaches on the back end.”

The survey also found that 85.2% of respondents require identification when making a return without a receipt. Retailers said they estimate 10% of returns made without a receipt are fraudulent, this is up from 5% who said so last year. It’s interesting to note that just 1% of purchases made online and returned to stores are suspected to be fraudulent, according to the report.

OTHER SURVEY FINDINGS
• 75.8% have experienced the return of merchandise purchased on fraudulent tender, down from 81.8% in 2014.
• 71% have experienced return fraud made by known organized retail crime groups, down from 78.2% last year.
• 77.4% of retailers surveyed have experienced employee return fraud or collusion with external forces, down from 81.8% in 2014.
• 30% of retailers have seen increased fraudulent purchases made with cash.
• 60.7% have seen an increase in the use of gift card/merchandise credit return fraud.