National Jeweler Network

Public Policy & Issues

Return fraud expected to increase 18 percent

December 11, 2013

Washington--Loss to retailers from return fraud during the holiday season is forecast to increase from $2.88 billion to $3.39 billion this year, a National Retail Federation (NRF) survey shows.

According to the data, nearly 6 percent of holiday returns are expected to be fraudulent this year, which is up slightly from the 5 percent recorded last year.

Estimates for total losses from return fraud over the year have decreased slightly, however. Retailers will lose an estimated $8.76 billion from return fraud this year, down from $8.81 billion in 2012, the NRF says.

Nearly 95 percent of retailers polled said that they have experienced the return of stolen merchandise in the last year, while 69 percent reported that they have seen the return of merchandise purchased with fraudulent or stolen tender.

This includes almost half saying that they have seen an increase in gift card/store merchandise credit fraud over the past year, 27 percent saying they have seen an increase in the fraudulent use of cash, and 29 percent have witnessed an increase in credit card fraud.

Additionally, more than 29 percent of retailers have found customers using counterfeit receipts to return merchandise.

Employee return fraud or collaboration with an external source also remains a major issue for retail stores, as 93 percent said they’ve dealt with the issue in the past year.

One of the biggest issues for retailers, according to the survey, is “wardrobing,” the return of used, non-defective merchandise. The NRF estimates that improved tactics are decreasing the trend, however, as the percentage of retailers who fell victim to the practice was down from the 65 percent recorded last year to 62 percent in 2013.

“While coverage of this issue paints return fraud as one of the ‘less severe’ retail crimes, the fact of the matter is that returning used or stolen items, or even using false tender to purchase items is fraud, period,” said Rich Mellor, NRF vice president of loss prevention. “Recent efforts to combat fraudulent activity are slowly starting to work, but criminals are becoming more savvy and technologically advanced in their methods, making it even more difficult for retailers and law enforcement to keep up with the growing problem.”

The issue of return fraud has brought many retailers--about 74 percent--to require customers returning merchandise without a receipt to show identification. Only 12 percent require shoppers with receipts to show ID, and 26 percent said that they don’t require any identification during the return process.

The NRF’s 2013 Return Fraud Survey polled senior loss prevention executives at 62 retail companies in October and November.