Return Fraud Expected to Reach $3.4B This Holiday Season

Retailers expect to lose an estimated $8.76 billion in return fraud this year - $3.4 billion during the holiday season alone, according to a new survey. The National Retail Federation’s (NRF) 2013 Return Fraud Survey found that 5.8 percent of holiday returns are fraudulent, up from 4.6 percent last year. Plus, a significant 60.3 percent of retailers said that the return fraud they experienced was linked to organized retail crime groups. I feel confident about the accuracy of these results, since the NRF surveyed loss prevention executives at 62 retail companies in the U.S. Criminals are becoming more savvy and technologically advanced in their methods, making it difficult for retailers and law enforcement to keep up with the growing problem, according to NRF Vice President of Loss Prevention Rich Mellor. “While coverage of this issue paints return fraud as one of the ‘less severe’ retail crimes, the fact of the matter is that returning used or stolen items, or even using false tender to purchase items is fraud, period,” Mellor said. Return fraud associated with gift cards or store merchandise is one of the biggest problems retailers are dealing with. 49.1 percent say they have witnessed an increase in gift cards/store merchandise credit fraud in the past year. Plus, 26.8 percent have seen an increase in the fraudulent use of cash associated with return fraud. Retailers are making some headway in return fraud, however. Many retailers have implemented policies that require customers returning merchandise to show identification, for example. ”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 (73.7 percent) now require customers returning items without a receipt to show identification,” according to a NRF statement. However, 26.3 percent say they do not require identification during the return process. Despite retailers’ increased efforts, return fraud is still a major problem. According to the survey, nearly all (94.8 percent) of retailers polled say they have experienced the return of stolen merchandise in the last year, and 69 percent report that they have experienced the return of merchandise purchased on fraudulent or stolen tender. Plus, 29.3 percent have found criminals using counterfeit receipts to return merchandise. 15.5 percent have also dealt with e-receipt return fraud. And, as online sales continue to grow, 82.5 percent of retailers are allowing customers to return merchandise purchased online in their stores. 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, and are beginning to see the fruits of their labor. Wardrobing fraud actually dropped from 64.9 percent in 2012 to 62.1 percent this year. Employee return fraud or collusion with external sources is also a huge problem for retailers. 93.1 percent said they have dealt with this issue in the past year. What are the top methods that your company has employed to reduce return fraud? We would love to hear your feedback on this important topic.