Return Fraud Plagues Retail

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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

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.