Abuse of liberal return policies and enterprising thieves will cost the retail industry $8.9 billion this year, including $2.9 billion during the holidays alone.
The National Retail Federation arrived at those massive numbers after surveying loss prevention executives at 60 member companies who estimated that 4.6% returns made during the holidays are fraudulent.
"Return fraud comes in a variety of forms and continues to present challenges for retailers trying to grapple with the sophisticated methods criminals are using to rip off retailers," said Rich Mellor, NRF’s vp of loss prevention. "Even more troubling is the fact that innocent consumers often suffer because companies have to look for ways to prevent and detect all types of crime and fraud in their stores, oftentimes resorting to shorter return windows and limitations on the types of products that can be returned."
Return fraud can take many forms and runs the gamut from organized criminals who return products using counterfeit receipts to those that exploit companies’ liberal return policies by returning items that have been worn or used.
According to the survey, 96.5% of retailers said they experienced the return of stolen merchandise in the last year, and 84.2% reported that they have experienced the return of merchandise purchased on fraudulent or stolen tender. Wardrobing – the return of used, non-defective merchandise like special occasion apparel and certain electronics – is a huge issue, with nearly two-thirds saying they have been victims of this activity within the last year. Additionally, 45.6% have found criminals using counterfeit receipts to return merchandise. Employee return fraud or collusion with external sources is also a big problem for retailers too with 81% reporting they dealt with the issue during the past year.
For the first time NRF asked loss prevention executives about return fraud with the use of e-receipts and about 20% said they have dealt with the issue. It is area ripe for increased loss as online sales continue to grow and retailers’ allow merchandise to be returned in stores.
"Many shoppers love the convenience and flexibility that digital receipts offer them, and unfortunately criminals are finding ways to manipulate them," said Mellor. "Return fraud in any form is a serious threat, and we know that retailers have made significant strides in their fight against retail crime, and are continuing their efforts working with law enforcement to address this multi-billion dollar problem."
Despite the prevalence of return fraud, retailers’ policies this holiday season are largely unchanged. Most respondents (83.1%) said their return policies this year are the same as last year and 10.2% said they actually relax their policies.
One solution to combat return fraud when customers don’t have a receipt is to ask for some form of identification. Because 13.4% percent of returns made throughout the year without a receipt are estimated to be fraudulent, three fourths of retailers now require customers to show identification.
The NRF survey was conducted in October and involved loss prevention executives from discount, department, drug, supermarket and specialty stores.