Fine-tuning return policies has become both a science and an art as retailers continue to grapple with roller-coaster return fraud rates. According to NRF’s annual Return Fraud Survey, completed by loss prevention executives at 111 retail companies, the retail industry will lose an estimated $3.68 billion to return fraud this holiday season, up from $2.74 billion last year. Return fraud will cost retailers an estimated $13.95 billion during the 2010 calendar year, up from $9.59 billion in 2009.

 

When asked if their company has ever changed its return policy to specifically address return fraud, nearly two-thirds (65%) said it had. “Retailers are still struggling to find the appropriate balance between providing stellar customer service for their shoppers while prohibiting criminals from taking advantage of lenient return policies,” said Joe LaRocca, Senior Asset Protection Advisor for NRF. “Combating this very costly problem helps retailers keep prices low but can unfortunately involve establishing policies that inconvenience honest shoppers.”

The most common type of return fraud is return of stolen merchandise, which 93.5 percent of retailers say they have experienced in the last year. Wardrobing – the return of used, non-defective merchandise like special occasion apparel and certain electronics – also poses a huge problem, as more than six in 10 retailers (61.7 percent) say they been victims of this activity within the last year, up from 46.2 percent in 2009.

 

Additionally, 88.8 percent say they have had a problem with employee return fraud, 68.2 percent have experienced the return of merchandise purchased on fraudulent or stolen tender, and 35.5 percent have found criminals using counterfeit receipts to return merchandise.

 

As a result of rampant fraud, many retailers have begun to adopt policies which require customers returning merchandise to show identification. Retailers estimate that 3.89 percent of returns with a receipt are fraudulent, but that number skyrockets to 12.61 percent for returns without a receipt. As a result, seven in ten retailers (67 percent) now require customers returning items without a receipt to show identification, which reduces fraud. One in five retailers (21.1 percent) requires shoppers with a receipt to show ID. While the majority of retailers’ policies will remain unchanged this year (83.6 percenet), 5.5 percent of retailers said they will loosen their holiday return policies while 10.9 percent will tighten. According to the survey, one-third (33 percent) of retailers say their return policies are more flexible during the holiday season in order to accommodate shoppers who may be purchasing gifts.