Retailers Estimate Holiday Return Fraud Will Cost Them $3.6 Billion
According to the National Retail Federation’s 2014 Return Fraud Survey completed by loss prevention executives at 60 retail companies representing grocery, department, discount, specialty and small retailers, the industry will lose an estimated $10.9 billion to return fraud this year. Additionally, of those surveyed, retailers estimate $3.6 billion will be lost to return fraud this holiday season alone, similar to last year’s $3.4 billion. Overall, retailers polled estimate 5.5 percent of holiday returns are fraudulent, similar to last year’s 5.8 percent.
“Today’s sophisticated technology does well keeping criminals at arm’s length but often isn’t enough to completely stop the unethical practices of organized and individual retail fraud occurrences,” said NRF Vice President of Loss Prevention Bob Moraca. “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. Additionally, many of these return fraud instances are a direct result of larger, more experienced crime rings that continue to pose serious threats to retailers’ operations and their bottom lines.”
According to the survey, nearly all (92.7%) of the retailers polled say they have experienced the return of stolen merchandise in the last year, similar to last year’s 94.8 percent. In a troubling sign that organized retail crime continues to present significant challenges for retailers, more than three-quarters of those polled (78.2%) say they have experienced return fraud through returns by organized retail crime groups, up from 60.3 percent last year.
As more shoppers look to digital receipts for ease and convenience, retailers are noticing increasing return fraud instances with e-receipts: the survey found more retailers this year said they have experienced return fraud with the use of e-receipts (18.2% versus 15.5 % last year).
The survey also found a significant jump in the number of retailers who say they have experienced the return of merchandise purchased with fraudulent or stolen payment methods (81.8% versus 69% last year).
Additionally, one-quarter (25.5%) of the retailers surveyed said they have witnessed fraudulent returns using counterfeit receipts, down slightly from 29.3 percent last year; eight in 10 (81.8%) retailers surveyed report that they’ve dealt with employee return fraud or collusion with external sources, down from 93.1 percent last year.
One of the biggest issues for retailers is the practice of “wardrobing,” or the return of used, non-defective merchandise such as special occasion apparel and certain electronics. Though many companies have employed specific tactics to curb this unethical practice, nearly three-quarters (72.7%) of retailers polled say they have experienced wardrobing in the past year, up from 62.1 percent last year.
The problem of return fraud has forced many retailers to adopt policies that require customers who are returning merchandise to show identification. Retailers estimate that 14.1 percent of the returns made throughout the year without a receipt are fraudulent and as a result, 70.9 percent now require customers returning items without a receipt to show identification. Even when a receipt is present, more retailers polled this year say they ask for identification (25.5% versus 12.3% last year.)
Overall, retailers report a small percentage of online purchases returned to their stores to be fraudulent (3.5%).
When asked about return fraud and the various types of payment methods, 72.7 percent of those polled said they have witnessed an increase in gift cards/store merchandise credit fraud in the past year. Nearly four in 10 (38.2%) surveyed said they have witnessed an increase in return fraud with the use of credit cards, although 45.5 percent report no change in fraudulent credit card usage from last year. Additionally, three in 10 (30.9%) said they’ve witnessed an increase in debit card fraud.
Eighty-seven percent of those polled said they allow customers to return merchandise bought online to their brick-and-mortar stores, up from 82.5 percent last year.