Retailers Lose Billions in Return Fraud

GDA Staff -- Gifts and Dec, 12/5/2012 11:54:50 AM

WASHINGTON - Return frauds in the form of criminals who return stolen merchandise, cost retailers billions of dollars each year, according to the National Retail Federation (NRF).

Criminals use everything from counterfeit receipts ro return items already worn and/or used that are not defective, according to NRF 2012 Return Fraud Survey, completed by loss prevention executives at 60 retail companies, the industry will lose an estimated $8.9 billion to return fraud this year, and $2.9 billion during the holiday season alone. Overall, retailers estimate 4.6 percent of holiday returns are fraudulent.

The survey found that nearly all (96.5 percent) of retailers polled say they have experienced the return of stolen merchandise in the last year, and 84.2 percent report 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 (64.9 percent) saying they have been victims of this activity within the last year. Additionally, 45.6 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: eight in 10 (80.7 percent) report they've dealt with this issue in the past year.

When it comes to their company's holiday return policy, most respondents, 83.1 percent, say their return policies will remain unchanged compared to last holiday season, and 10.2 percent say they will actually loosen their policies to help ease the process for gift givers and recipients.

"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, vice president of loss prevention, NRF. "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." Nearly two in 10 (19.3 percent) retailers say they have dealt with e-receipt return fraud. As online sales continue to grow, 86 percent say they allow customers to return merchandise purchased online in their stores, and retailers estimate 3.9 percent of those returns are fraudulent.

The problem of return fraud has forced many retailers to adopt policies which require customers returning merchandise to show identification, according to the NRF report. Retailers estimate that 13.4 percent of the returns made throughout the year without a receipt are fraudulent. As a result, nearly three-quarters (73.2 percent) now require customers returning items without a receipt to show identification. Just seven percent (7.1 percent) of retailers require customers making returns with a receipt to show ID, and more than one-quarter (26.8 percent) say they do not require identification during the return process.