Retail fraud expected to cost retailers $3.8 billion
The holiday season is a busy one for retailers, but unfortunately, as technology improves so does the ability for criminals to take advantage, especially when it comes to return fraud.
The retail industry expects to lose $10.9 billion to return fraud this year, $3.8 billion of which will be lost during the holiday season alone, according to the National Retail Federation's (NRF) 2014 Return Fraud Survey. In 2013, retailers lost $3.4 billion to return fraud during the holiday season.
"Today's sophisticated technology does well keeping criminals at arm's length, but often isn't enough to completely stop the unethical practices of organized and individual retail fraud occurrences," said Bob Moraca, vice president of loss prevention at NRF, in an emailed press release on Dec. 19. "Return fraud has become an unfortunate trend in retail thanks to thieves taking advantage of retailers' return policies to benefit from the cash or store credit they don't deserve. Additionally, many of these return fraud instances are a direct result of larger, more experienced crime rings that continue to pose serious threats to retailers' operations and their bottom lines."
Retails estimate that 5.5 percent of holiday returns this year will be fraudulent.
According to the survey, nearly all of the retailers polled said they have experienced the return of stolen merchandise in the last year. More than three-quarters of respondents, 78.2 percent, said they have experienced return fraud through returns by organized retail crime groups, up from 60.3 percent last year.
In addition, as more shoppers use digital receipts, retailers are noticing an increasing number of return fraud instances, 18.2 percent compared to 15.5 percent last year.
"We have seen organized retail crime rings present fraudulent credit slips to try and get money and retailers constantly are working behind the scenes to help fight these rings and to prevent fraudulent returns," said Daniel Butler, senior adviser with NRF. "Criminals try to take advantage of the busy season to try to get around the loopholes that may be in a retailer's system. These rings work quickly and will often present return receipts at multiple locations at the same time. So, retailers have had to become much more sophisticated in how they fight organized crime in return attempts."
One of the biggest issues for retailers is the practice of wardrobing, or the return of used, non-defective merchandise like special occasion apparel and certain electronics. Nearly 75 percent of retailers polled said they have experienced wardrobing in the past year.
"As long as you have a receipt, typically you won't have a problem. If you don't have a receipt, usually stores will ask for identification," Butler said.
Retailers estimate that 14.1 percent of the returns made throughout the year without a receipt are fraudulent and as a result, 70.9 percent now require customers to show identification if they are returning items without a receipt. Even with a receipt, more retailers are requiring customers to show identification during a return.
The survey polled loss prevention executives at 60 retail companies representing department, grocery, discount, specialty and small retailers.