Holiday Fraud May Cost Stores $3.68B

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Holiday sales are projected to rise but retailers should worry about one downside this season: return fraud. According to a report from the National Retail Federation (NRF), return fraud this holiday season is expected to increase by 34%, with retailers projected to lose an estimated $3.68 billion to customers’ dirty dealings.

Last year, the federation estimated that stores would lose $2.74 billion on sketchy returns, and the fraud is projected to cost retailers $13.95 billion in total this year, up from $9.59 billion in 2009.

The most common type of return fraud, the report notes, is the return of stolen merchandise, which 93.5% of retailers experienced in the last year. Second most common are fraudulent returns from employees, which 88% of retailers experienced. In addition, 68.2% of stores have experienced the return of merchandise purchased with counterfeit money. Counterfeit receipts were also a popular choice, with 35.5% of retailers experiencing this type of return fraud.

Fraudsters are also resorting to new tactics this year, perhaps in light of many stores’ tightened return policies. The return of used, non-defective merchandise like special occasion apparel and certain electronics, referred to as “wardrobing,” increased significantly this year, with 61.7% of retailers identifying it as a problem compared with 46.2% in 2009.

In lieu of raising prices to recoup the losses, many retailers have taken a tougher stance against merchandise returns this year. When retailers were asked if they had ever changed return policies to specifically address return fraud, nearly two-thirds (65%) said they had and 11% said they planned to institute even more stringent return policies this holiday season.

“Combating this very costly problem helps retailers keep prices low but can unfortunately involve establishing policies that inconvenience honest shoppers,” Joe LaRocca, senior asset protection advisor for NRF, said in a press release.

According to the survey, retailers estimate that 3.89% of returns accompanied by a receipt are fraudulent. This number increases to 12.61% when considering returns made without a receipt. As a result, seven in 10 retailers (67%) now require customers who return items without a receipt to show identification to reduce fraud. One in five retailers (21.1%) require shoppers with a receipt to show ID as well.

NRF conducted its annual Return Fraud Survey in October by polling senior loss prevention executives at 111 retail companies. Executives from discount stores, department stores, drug stores, supermarkets and specialty stores participated in the survey.

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