Fighting Return Fraud

The most common type of return fraud is return of stolen merchandise. Wardrobing, the return of used non-defective merchandise, like special occasion apparel and certain electronics, also poses a huge problem, as more than six in 10 retailers (61.4 percent) say they have been victims of this activity within the past year. Yet according to the National Retail Federation’s annual Return Fraud Survey, the retail industry is estimated to lose $3.48 billion in return fraud this holiday season, down from $3.73 billion last year, thanks in part to stricter return policies. The NRF reports, “When asked if their company has ever changed its return policy to specifically address return fraud, nearly two-thirds (64 percent) said it had.”

Strict Return Policies and In-store Procedures Used to Deter Return Fraud

Among some of the stricter features retailers are adopting as part of their return policy are specific windows of time in which the return can be made, detailed reshipping rules, store credit returns, and the need for identification and a receipt. The survey found that 2.89 percent of returns with a receipt are fraudulent, but those without a receipt have a higher chance of fraud, estimated around 14.2 percent. According to the NRF, “As a result, six in 10 retailers now require customers returning items without a receipt to show identification. Slightly more than 10 percent of retailers require customers making returns with a receipt to also show ID.”

Not all retailers have taken the time to focus on possible fraud this holiday. In fact, “Most respondents (82.5 percent) state their return policies will remain unchanged this holiday season, on par with last year,” confirms the Return Fraud Survey. However, spotting return fraud may be difficult for some retailers. As a result, retail stores being adversely affected by returns should look for these signs: high shrink rate, dramatic increase in number of returns, return policy not being enforced, and increasing number of markdowns due to returns.

This piece was adapted from an article by the National Retail Federation.