Return Fraud Plagues Retail

Susan Nunziata, Director of Editorial | 12/20/2012 | 59 comments

Susan Nunziata
Looking to help your retail enterprise increase revenue through the use of technology? Try teaming up with your loss prevention team to work out an IT solution for stopping return fraud.

According to the National Retail Federation (NRF), 4.6 percent of holiday returns are fraudulent. That's a pretty high percentage when you consider that, on average, 10.7 percent of holiday purchases at US retailers are returned, according to the NRF's 2012 Return Fraud Survey. Simple math shows that nearly half of all holiday returns are fraudulent.

The Return Fraud Survey, which polled loss prevention executives at 60 retail enterprises, reveals that US retailers collectively stand to lose $2.9 billion to return fraud this holiday season. (For the full year, they expect to lose $8.9 billion.) Loss prevention executives from discount stores, department stores, drugstores, supermarkets, and specialty stores completed the NRF's survey in October 2012.

Return fraud comes in a variety of shapes and sizes, including:

  • Return of stolen merchandise for a cash refund
  • Return of merchandise that was purchased using a stolen credit card or other fraudlent form of payment
  • Using counterfeit receipts to return merchandise
  • Returning items that have been worn or used and are not defective

Table 1: NRF 2012 Return Fraud Survey

Which examples of return fraud has your company experienced in the past year? Percent respondents
Returns using counterfeit receipts 45.60%
Wardrobing (returns of used, non-defective merchandise) 64.90%
Return of stolen merchandise 96.50%
Return of merchandise purchased on fraudulent or stolen tender 84.20%
Employee return fraud or collusion with external sources 80.70%
Return using e-receipts 19.30%
Source: NRF 2012 Return Fraud Survey

What's most surprising about these results is that customer service appears to trump retailers' concerns about dollars lost to return fraud. In fact, 83 percent of respondents said their return policies will not change from last holiday season. Only 7 percent said they are tightening their policies, and 10 percent said they will actually loosen their policies to ease the process for gift givers and recipients.

ConsumerWorld.org reports that some retailers "record IDs in a tracking database to detect excessive returns or to thwart return fraud." The website also reports on other steps some retailers are taking to thwart holiday shopping fraud. For example, to discourage "wardrobing," the Express apparel chain requires special occasion dresses to be returned with their tags still in place.

Given the vast amounts of data retailers appear to be collecting about their customers, surely there are other opportunities to minimize return fraud without inconveniencing honest consumers who want to get rid of that awful sweater they got from dear Uncle Hank.

When was the last time anyone in your IT organization had a conversation with your company's loss prevention executives? Are your loss prevention and store security experts bothering to involve IT the search for a way to solve these problems? It seems worth at least starting a dialogue, considering that we're talking about nearly $9 billion of losses here.

View Comments: Newest First | Oldest First | Threaded View
Page 1 / 6   >   >>
Don K   Return Fraud Plagues Retail   1/31/2013 10:55:14 PM
Re: tags and labels present
Kechiko: yes that's bad but that is what's been happening isn't it ?
KeithGrinsted   Return Fraud Plagues Retail   12/31/2012 4:14:37 PM
Re: This fraud is alarming
@Taimoor I think the returns policy is the actual problem itself.

Because people know they can return stuff they often buy stuff just to take it home and see how it fits, whether it goes with something else, whether it goes in a room ro whatever.

If there were no return policy they'd probably not have taken a chance on the item!

So the stores do probably benefit from additional sales.
Susan Nunziata   Return Fraud Plagues Retail   12/31/2012 7:28:14 AM
Re: the good and the bad
@impactnow. Sounds like you may have experienced the after effects of retail response to return fraud. Or more likely we can chalk your unfortunate experiences to plain old bad customer service. She thers $$ lost to return fraud but I wonder how much revenue retailers give up each year from losing good customers after bad experiences like these.
Susan Nunziata   Return Fraud Plagues Retail   12/31/2012 6:22:17 AM
Re: ROI (and REI)
@Joe. Good point. I think when it comes to what role IT can play in this discussion there is more to be done with information technology and data that can be applied in preventing return fraud. I tend to think of shoplifting as an issue of physical security. What role do you see for IT solutions that could be used for reducing shoplifting?
Taimoor Zubair   Return Fraud Plagues Retail   12/30/2012 5:04:10 AM
Re: This fraud is alarming
@Keith: It makes sense if there's a high percentage of returns with online sales. But it's surprising to see a higher return rate with physical sales in spite of the fact that the users were allowed to try the articles on and examine them in as many ways as they wanted to. I think a stricter return policy would not really affect sales much - it would just make consumers think more before they choose the object and pay.
Taimoor Zubair   Return Fraud Plagues Retail   12/30/2012 4:53:32 AM
Re: Returns vs Exchange
"If a potential customer doesn't know that it can trust you to make good products, they may not want to buy your stuff"

@Sara: Agreed. But would you rather want a confirmed sale or a sale where the item is likely to be brought back and you have to incur the additional expenses of fixing the article to make sure it's salable again? A very high percentage of returns would disrupt your sales planning as well. I'd rather prefer fewer sales with a less percentage of returns over huge sales and huge returns.
impactnow   Return Fraud Plagues Retail   12/29/2012 6:45:53 PM
the good and the bad
 

I did make  lots of returns over the last couple days and I have to say overall they were positive. I only had two bad experiences. One at Macys regarding a gift that faded after its first wash no return accepted even with a receipt and at Best Buy no refund for a product without the receipt and no store credit, just nothing. Don't think I will ever shop there again. In the case of Macy's my credit card offers a purchase protection program for issues like this and I will most likely use it, sad they didn't stand behind their merchandise though. I will definitely consider my purchases there in the future. Target was by far my best experience quick and efficient.
nasimson   Return Fraud Plagues Retail   12/29/2012 3:26:29 AM
Re: Simple is better
@impactnow: Well, this is not a very big issue. If companies use computerized technology with efficient databases, receipts aren't necessary. 
Joe Stanganelli   Return Fraud Plagues Retail   12/28/2012 2:53:45 AM
Re: What about online / offline purchase / return policy?
Makes sense, given that the headache of returns is part of the reason some don't shop online (especially for clothes).

(I remember getting something for my girlfriend several years ago online.  It didn't fit.  They did me a favor of sending me a new one without making me return the old one.  The new one still didn't fit.  Then they made me go through their draconian return process.  It was so frustrating that I just let them charge my credit card a second time when I didn't return the old one -- because for the value of my time, it was worth it to not deal with the hassle.)
Joe Stanganelli   Return Fraud Plagues Retail   12/28/2012 2:49:59 AM
Re: ROI (and REI)
Re: "focus on finding a way to stop organized criminals who are making money by returning shoplifted goods."

That's just it.

Pundits are going on and on about the hot topic of return fraud, citing this very example.

So why are we talking about better preventing return fraud and not talking about better preventing shoplifting?
Page 1 / 6   >   >>


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