Retailers Estimate Holiday Return Fraud Will Cost Them $3.4 Billion

As one of the most serious, but often most misunderstood, retail loss prevention issues, return fraud costs retailers billions of dollars every year.  According to NRF’s 2013 Return Fraud Survey* completed by loss prevention executives at 62 retail companies, 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.

“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,” said NRF Vice President of Loss Prevention Rich Mellor. “Recent efforts to combat fraudulent activity are slowly starting to work, but criminals are becoming more savvy and technologically advanced in their methods, making it even more difficult for retailers and law enforcement to keep up with the growing problem.”

According to the survey, nearly all (94.8%) retailers polled say they have experienced the return of stolen merchandise in the last year, and 69.0 percent report that they have experienced the return of merchandise purchased on fraudulent or stolen tender. Additionally, 29.3 percent have found criminals using counterfeit receipts to return merchandise. Employee return fraud or collusion with external sources is also a big problem for retailers: nine in 10 (93.1%) report they’ve dealt with this issue in the past year. For the first time, NRF asked retailers about their experiences with return fraud and a connection to organized retail crime groups: 60.3 percent have experienced this in the past 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, and are beginning to see the fruits of their labor: 62.1 percent report having been victims of wardrobing, down from 64.9 percent last year.

The survey found 15.5 percent say they have dealt with e-receipt return fraud. And, as online sales continue to grow, 82.5 percent say they allow customers to return merchandise purchased online in their stores.

The problem of return fraud has forced many retailers to adopt policies which require 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 (73.7%) now require customers returning items without a receipt to show identification; 12.3 percent of retailers require customers making returns with a receipt to show ID, and more than one-quarter (26.3%) say they do not require identification during the return process.

When asked about return fraud and the various types of tender, almost half (49.1%) say they have witnessed an increase in gift cards/store merchandise credit fraud in the past year. One in five (19.6%) say they have seen a decrease in the fraudulent use of cash, but more than a quarter (26.8%) have seen an increase; half report no change (48.2%). Additionally, three in 10 (29.1%) say they’ve witnessed an increase in credit card fraud, 18.2 percent say those incidents have decreased and more than half (52.7%) say there’s no change from last year. This is the first time NRF has asked about tender fraud and changes.

On a scale of one to five, one being not at all effective, retailers rank their current policies at 3.55 in terms of being effective in deterring return fraud.

About the survey
NRF’s 2013 Return Fraud Survey polled senior loss prevention executives at 62 retail companies in October and November, 2013. Executives from discount stores, department stores, drug stores, supermarkets and specialty stores completed the survey.