Reach Of The Week: NRF's Return Fraud Claim

You might have seen recent media reports that the National Retail Federation was predicting some $200 million in additional return fraud this year. But a closer examination of what that figure is based on wins this news release the award for our Reach of the Week.

In the NRF's second annual return fraud survey, the retail group asked 60 loss prevention execs in October what they guessed/projected would be their fraud this holiday season. Please note they have no basis to make such a prediction—given the lack of paperwork filed by the typical shoplifter and related fraudsters—other than to project off of last year's figures.

Therefore, it's no surprise that the execs essentially said that it would be the same as last year. Clearly, though, no statistical analysis is ever precise, which is why surveys have a margin of error. This is especially true when the sample size is as small as 60 (some surveys query more than 10,000 people).

The NRF's reported figures calculate to a projected 8.93 percent holiday fraud prediction for this year, compared with an 8.67 percent prediction from last year. If you round it up, that's both a 9 percent prediction, meaning no change.

But despite the small sample size, no margin of error reported and the fact that these were projected guesses (which presumably have little if any foundation), the NRF news release took the literal percentages and concluded that retailers will lose "an estimated $3.7 billion this holiday season, up from $3.5 billion last year."

Please don't get us wrong. Retail return fraud is a critical issue and it's likely to increase every year. But hanging one's hat on a $200 million increase with such a flimsy foundation undermines this very serious issue. When they have a real number the next time, it will be looked on with duly-warranted skepticism.