Survey: Return fraud will cost retailers $3.5 billion this holiday season

Retailers can expect to lose $3.5 billion from return fraud this holiday season, according to a National Retail federation survey. For the year, the retail industry stands to lose $9.6 billion from this practice. Criminals commonly take advantage of companies’ return policies to receive cash for stolen merchandise, launder money or return an item after it has been used, NRF says.

“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. “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.”

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, according to NRF’s Return Fraud Survey, completed by retail executives. Retailers say they have also been plagued by returns of merchandise that was originally purchased with fraudulent or counterfeit tender (69.1%) and returns using counterfeit receipts (52.4%).

Additionally, stores commonly find consumers attempting to return merchandise that has been used but is not defective. This practice, called “wardrobing,” has affected more than half of companies (56%) in the past year and can include returns of everything from special occasion dresses to laptop computers, according to the survey. Retailers often cannot resell this merchandise at face value and are forced to either heavily discount or discard the used merchandise. Also, the unethical practice of wardrobing frequently makes merchandise in the most popular sizes, colors, and models unavailable to other customers who would like to purchase the product.

Return fraud has become so rampant in the industry that 69 percent said their companies’ return policies have been changed to specifically address the issue.

Though companies acknowledge changing their policies in the past, 70 percent of retailers surveyed said that their return policies will remain the same this holiday season. Some retailers will be tightening their policies this year (25%) while others will loosen return policies (4.8%), 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 was designed to measure the amount of return fraud occurring in the retail industry. The survey, which polled 90 retailers, was conducted in October.