Return Fraud to Cost Retailers $2.9B This Holiday Season: NRF

The National Retail Federation’s (NRF) 2012 Return Fraud Survey, completed by loss prevention executives at 60 retail companies in October, has found that retailers are poised to lose an estimated $8.9 billion to return fraud this year -- $2.9 billion just during the holiday season. Retailers estimate that 4.6 percent of total holiday returns are fraudulent.

“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, VP of loss prevention at Washington, D.C.-based 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.”

Almost all (96.5 percent) retailers polled said they’ve had stolen merchandise returned in the past year, and 84.2 percent noted that they’ve experienced the return of merchandise bought with fraudulent or stolen tender. Nearly two-thirds (64.9 percent) of respondents said they’ve been victims of wardrobing, or the return of used, nondefective merchandise such as special-occasion apparel and certain electronics, within the past year. Further, 45.6 percent have discovered criminals using counterfeit receipts to return merchandise. And eight in 10 (80.7 percent) respondents reported dealing with return fraud or collusion with external sources in the past year.

For the first time in this survey, NRF asked about return fraud with the use of e-receipts, and nearly two in 10 (19.3 percent) loss prevention execs responded that they’ve dealt with the issue. As online sales continue to grow, 86 percent said they let customers return merchandise bought online in their stores, estimating 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,” added Mellor. “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.”

Most respondents (83.1 percent) said their respective companies’ holiday return policies would remain unchanged from last holiday season, and 10.2 percent said they’d actually loosen their policies to help ease the gift-giving and –receiving process.

The return fraud issue has obliged many retailers to implement policies requiring customers who return merchandise to present identification. Retailers estimated that 13.4 percent of the returns made throughout the year without a receipt are fraudulent. As a result, almost three-quarters (73.2 percent) now require customers returning items without a receipt to present identification. Meanwhile, only 7.1 percent of retailers require customers making returns with a receipt to show ID, and more than one-quarter (26.8 percent) don’t require identification for the return of items.

Executives from discount stores, department stores, drug stores, supermarkets and specialty stores participated in the survey.