The National Retail Federation has put a price tag on the cost of fraudulent holiday returns, and it’s larger than the volume of a number of the trade association’s members.
Based on responses from loss prevention executives at 60 U.S.-based retail companies for its 2012 Return Fraud Survey, NRF estimates that return fraud will cost U.S. retailers $2.88 billion this holiday, about 4.6 percent of the $62.71 billion in total merchandise returned during the season.
That indicates a spike in fraud among consumers returning gifts and other merchandise as the holidays approach. These same executives said that fraudulent returns account for $8.81 billion during the full year, about 3.3 percent of the total of $263.1 billion in merchandise returned.
Although still a relatively new practice, “e-receipts” are providing a new outlet for criminal activity, as nearly two in 10 executives — 19.3 percent — reported dealing with fraud of this type. Eighty-six percent of the retailers said they allow in-store returns of merchandise purchased online, and they estimate that 3.9 percent of those returns are fraudulent.
“Many shoppers love the convenience and flexibility that digital receipts offer them, and unfortunately criminals are finding ways to manipulate them,” said Rich Mellor, vice president of loss prevention at NRF. “Return fraud in any form is a serious threat, and we know that retailers have made significant strides in their fight against retail crime, and are continuing their efforts, working with law enforcement to address this multibillion-dollar problem.”
Although perhaps the most brazen of fraudulent return methods, return of stolen merchandise is by far the most frequent, reported by 96.5 percent of the retail respondents. Return of merchandise purchased with fraudulent or stolen tender was the second most frequent, reported by 84.2 percent of retailers, followed by employee return fraud or collusion with external sources (80.7 percent). “Wardrobing” — the return of used but non-defective merchandise — affected nearly two-thirds of the stores, or 64.9 percent. Returns using counterfeit receipts was reported by 45.6 percent of the stores.
The executives estimated that 8.8 percent of their sales resulted in returns and that 3.4 percent of those returns were fraudulent in nature. During the holiday season, the return percentage jumps to 10.7 percent, 4.6 percent of which are suspected of being fraudulent. Loss prevention officials believe that 1.9 percent of returns made with a receipt are fraudulent, versus 13.4 percent of returns made without a receipt. About one in six returns — 17.3 percent — is made without a receipt.
Less than three-quarters of the retailers — 73.2 percent — require customers to show identification when they attempt to make returns without a receipt but just 7.1 percent require the same when return requests are accompanied by a receipt.