Holiday-season return fraud to cost $3.5 billion

According to the National Retail Federation’s inaugural Return Fraud Survey, completed by retail executives, criminals commonly take advantage of companies’ return policies to receive cash for stolen merchandise, to launder money or to return an item that has already been used.

The losses are staggering: According to the survey, retailers can expect to lose $3.5 billion from return fraud this holiday season, and a total of $9.6 billion for the year.

“Retailers have often viewed lenient return policies as a cost of doing business with honest shoppers,” said Joseph LaRocca, NRF Vice President of Loss Prevention, in a news release. “Unfortunately, due to an increase in return fraud, retailers are being forced to strike a delicate balance between servicing loyal shoppers and discouraging opportunistic criminals.”

What is return fraud?

According to the survey, the most popular form of return fraud is the return of stolen merchandise, which 95.2 percent of retailers have experienced in the past year. Retailers say they have also been plagued by returns of merchandise that was originally purchased with fraudulent or counterfeit tender (69.1 percent) and returns using counterfeit receipts (52.4 percent).

Additionally, stores commonly find consumers attempting to return merchandise that has been used but is not defective. This practice, called “wardrobing,” has affected 56 percent of surveyed companies in the past year and can include returns of everything from special-occasion dresses to laptop computers.

Retailers often cannot resell this merchandise at face value and are forced to either heavily discount or discard the used merchandise. Also, frequent wardrobing makes merchandise in the most popular sizes, colors and types unavailable to other customers.

Time for new rules?

Return fraud has become so rampant in the industry that more than two-thirds of retailers – 69.1 percent – said their companies’ return policies have been changed specifically to address the issue.

Though companies acknowledge changing their policies in the past, 70.2 percent of retailers surveyed said that their return policies will remain the same this holiday season as last. Some retailers – 25 percent – will be tightening their policies this year, while 4.8 percent will loosen return policies, giving customers extra time to return merchandise or being more lenient on returns without a receipt.

Retailers surveyed said that the amount of returns typically rises after the holiday season from an annual average of 7.3 percent to a post-holiday rate of 8.8 percent.

The NRF 2006 Return Fraud Survey polled 90 retailers and was conducted Oct. 2–27.[[In-content Ad]]