Retailers estimate that 3.5 percent of their holiday returns this year will be fraudulent, up slightly from the estimated 3 percent reported last year, according to the National Retail Federation’s latest “Return Fraud Survey.”
Holiday return fraud is expected to cost retailers $2.2 billion, up from about $1.9 billion last year.
NRF noted that retail fraud comes in many shapes and sizes and is especially rampant during the holiday season, when online and in-store traffic grows significantly.
Retailers surveyed estimated that total annual returns will reach $260.5 billion, or 8 percent of total retail sales, with $9.1 billion of retailers’ annual returns expected to be fraudulent, representing 3.5 percent of the industry’s total returns.
“Return fraud remains a critical issue for retailers with the impact spanning far and wide, in-store and online,” said Bob Moraca, NRF’s vice president of loss prevention. “While technology has played a significant role in deterring many in-person fraudulent transactions that would have otherwise gone unseen, there is little that can be done to prevent a determined criminal who will find a loophole one way or another. When it comes to retail fraud, retailers can build taller walls, but criminals continue to find taller ladders.”
When it comes to specific instances of return fraud, one problem stands out as the biggest offender — 91.9 percent of retailers surveyed said they have experienced the return of stolen merchandise, similar to last year’s 92.7 percent. Wardrobing, or the return of used, nondefective merchandise, also presents a challenge each year to retailers, with 72.6 percent of those polled saying they have experienced wardrobing in the past year, on par with last year’s 72.7 percent.
The report does offer a glimmer of improvement, though. According to the survey, fewer retailers in 2015 have experienced specific instances of return fraud — 75.8 percent have experienced the return of merchandise purchased on fraudulent tender, down from 81.8 percent in 2014, and 71 percent have experienced return fraud made by known organized retail crime groups, down from 78.2 percent last year, while 77.4 percent experienced employee return fraud or collusion with external forces, down from 81.8 percent in 2014.
Given the growing use of e-receipts by retailers, the survey found a likely connection to fraud in this area. The survey found one-third having experienced return fraud with the use of e-receipts, up from 18.2 percent last year.
“Retailers have the difficult task of providing superior customer service by always giving the benefit of the doubt to their shoppers when it comes to returns, while simultaneously working to make sure they protect their business assets,” Moraca added. “We expect retailers to continue their tried-and-true ways of combating fraud through increased usage of identification verification, as well as seeking new and innovative approaches on the back end.”
Additional findings from the survey included that 30 percent saw an increase in fraudulent purchases made with cash, while 60.7 percent saw an increase in the use of gift card/merchandise credit return fraud. About 80 percent said they require identification when making a return without a receipt, up from 70.9 percent last year.
Retailers surveyed said they estimate 10 percent of returns made without a receipt are fraudulent, up from an estimated 5 percent last year. Just 1 percent of purchases made online and returned to stores are suspected to be fraudulent.