Holiday Return Fraud Will Cost Retailers An Estimated $2.2 Billion In

By Christine Kern, contributing writer

New study finds that 3.5 percent of holiday returns will be fraudulent this year.

Retail fraud is especially rampant during the holiday season as online and in-store traffic increases substantially, and one of the biggest issues faced by retailers throughout the holiday season is return fraud. According to NRF’s latest Return Fraud Survey, retailers estimate that 3.5 percent of their holiday returns this year will be fraudulent, a slight increase over the estimated 3 percent reported last year. Holiday return fraud is expected to cost retailers $2.2 billion, up from approximately $1.9 billion last year.

”Return fraud has become an unfortunate trend in retail thanks to thieves taking advantage of retailers’ return policies to benefit from the cash or store credit they don’t deserve,” stated Bob Moraca, NRF Vice President of Loss Prevention

Based on the survey of retailers, total annual returns will reach an estimated $260.5 billion, or 8 percent of total retail sales, with $9.1 billion of retailers’ annual returns expected to be fraudulent, or 3.5 percent of the industry’s total returns.  

“Return fraud remains a critical issue for retailers with the impact spanning far and wide, in-store and online,” said Moraca.

“While technology has played a significant role in deterring many in-person fraudulent transactions that would have otherwise gone unseen, there is little that can be done to prevent a determined criminal who will find a loophole one way or another. When it comes to retail fraud, retailers can build taller walls, but criminals continue to find taller ladders.” 

Among the most common forms of fraudulent returns are the return of stolen merchandise and wardrobing (the return of used, non-defective merchandise). Nine in 10 retailers surveyed said they have experienced the return of stolen merchandise, while nearly three-quarters  of those polled said they have experienced wardrobing in past year.

Despite the continued challenging of return fraud, the survey did indicate that fewer retailers have experienced specific instances of it in 2015. The report found:

• 75.8 percent have experienced the return of merchandise purchased on fraudulent tender, down from 81.8 percent in 2014;
• 71 percent have experienced return fraud made by known organized retail crime groups, down from 78.2 percent last year;
• 77.4 percent of retailers surveyed have experienced employee return fraud or collusion with external forces, down from 81.8 percent in 2014.  

 “Retailers have the difficult task of providing superior customer service by always giving the benefit of the doubt to their shoppers when it comes to returns, while simultaneously working to make sure they protect their business assets,” continued Moraca. “We expect retailers to continue their tried and true ways of combating fraud through increased usage of identification verification, as well as seeking new and innovative approaches on the back end.”