Prevent Return Fraud

Prevent Return FraudReturn fraud costs retailers billions of dollars every year.  According to the National Retail Federation’s 2013 Return Fraud Survey, the industry will lose an estimated $8.76 billion to return fraud this year, and $3.39 billion during the holiday season alone. Overall, 5.8 percent of holiday returns are fraudulent, up slightly from 4.6 percent last year. Retailers can, however, take steps to fight this enormous loss, even in the midst of the busiest shopping season of the year.

One of the biggest issues for retailers is the practice of wardrobing, or the return of used, non-defective merchandise like special occasion apparel and certain electronics. Many companies have employed specific tactics to help curb this unethical practice, such as requiring customers returning merchandise to show identification. Retailers estimate that 13.97 percent of the returns made throughout the year without a receipt are fraudulent and, as a result, nearly three-quarters now require customers returning items without a receipt to show identification. In addition, 12.3 percent of retailers require customers making returns with a receipt to show ID. Additional tactics, from Andrew Wren, CEO of loss prevention technology provider Wren Solutions, focus on three areas: technology, policies and employees.


In addition to a robust return authorization system to aid in identifying serial abusers, video monitoring at the point of sale and throughout the store can be a strong deterrent. At the register and in the aisles, cameras at merchandise level will ward off theft proactively. If they can’t steal it, they can’t return it.


While overly strict policies may alienate some customers, a strong returns policy can be effective in deterring would-be abusers.

While overly strict policies may alienate some customers, a strong returns policy can be effective in deterring would-be abusers. Limit the time allowed for returns; require identification when there is no receipt; offer merchandise credit or exchange for purchases made on a gift card, a friend or family member’s credit card or returned with a gift receipt; and only issue refunds in the same form of currency as the original purchase. Internally, ensure that your policies for processing returns are clear and audit frequently to ensure they are being followed and enforced consistently.


Pre-employment screening has been shown to be effective in identifying individuals who are predisposed to unwanted behaviors and can be a valuable tool in fighting internal theft and fraud, especially as many retailers are doing additional hiring for the holiday season. Furthermore, training in return fraud detection can boost loss prevention efforts to identify dishonest activities and has the added benefit of letting employees know their activities are being observed. When audits indicate that policies are not being followed, re-train to ensure employees know what is expected of them.

Regardless of strong return processes and well-trained employees, be sure to audit frequently to verify processes are being followed. The trick is to strike a balance between a flexible returns process that appeals to honest customers and efforts to detect and isolate abusers.