Return Fraud Could Hit $2B After Christmas

People hit the stores after Christmas to return merchandise, but not always for legitimate reasons.

Post-holiday returns include the return of merchandise that was never bought in the first place, or was in fact worn and then returned—and the costs are substantial. Holiday return fraud is expected to cost retailers $2.2 billion, up from approximately $1.9 billion last year. Retailers estimate that 3.5% of their holiday returns this year will be fraudulent, up slightly from last year’s estimated total, according to the National Retail Federation’s latest Return Fraud Survey.

Retailers predict that 8% of total retail sales will be lost to total annual returns, estimated at $260.5 billion. The amount of annual returns expected to be fraudulent is estimated at a cool $9.1 billion.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

One problem stands out as the biggest type of return fraud: nine in 10 retailers surveyed said they have had people return stolen merchandise, similar to last year. Wardrobing, or the return of used, non-defective merchandise, also presents a unique challenge for retailers each year: three-quarters (73%) said they experienced wardrobing in the past year, on par with the previous year.

Return fraud in 2015 seemed to be dipping, with the return of merchandise bought using “fraudulent tender” at 76% and return fraud made by known organized retail crime groups at 71%. Return fraud using electronic receipts nearly doubled, however, from 18% in 2014, to 34%.

A majority of retailers surveyed (77%) said they their employees took part in return fraud or colluded with those outside the organization. Retailers estimate that 10% of returns made without a receipt are fraudulent, up from an estimated 5% last year. Just 1% of purchases made online and returned to stores are suspected to be fraudulent.

Other findings of the report are:

  • Three in 10 surveyed said they saw more fraudulent purchases made with cash, while six in 10 saw more use of gift card/merchandise credit return fraud.
  • More than eight in 10 retailers surveyed said they require ID when making a return without a receipt, up from 71% last year.