News

NRF: Return fraud to cost retailers $3.5 billion this holiday season

November 9, 2011

While still a tremendous problem, fewer retailers are expecting return fraud rates to grow this holiday season, thanks in part to enhanced return policies and requiring identification when receipts are not present during the return process. According to NRF's annual Return Fraud Survey, completed by loss prevention executives at 103 retail companies, the retail industry will lose an estimated $3.48 billion to return fraud this holiday season, down from $3.73 billion last year. Annual return fraud will cost retailers an estimated $14.37 billion in 2011, up slightly from $13.66 billion in 2010.

"Those who think they will be able to get away with manipulating a company's return policy will be sorely disappointed this holiday season," said Joe LaRocca, senior asset protection advisor for NRF. "Retailers have been putting checks and balances in place to prevent people from taking advantage of stores' return policies, which raises prices for honest shoppers."

According to the survey, nearly nine in 10 (89.1 percent) retailers say they have experienced the return of stolen merchandise in the last year, and just as many (89.1 percent) report that employee return fraud or collusion with external sources has been a problem in the past year. Wardrobing – the return of used, non-defective merchandise like special occasion apparel and certain electronics – also poses a huge issue, as more than six in 10 retailers (61.4 percent) say they been victims of this activity within the last year. Additionally, eight in 10 (81.2 percent) say they have experienced the return of merchandise purchased on fraudulent or stolen tender, and 38.6 percent have found criminals using counterfeit receipts to return merchandise.

When asked if their company has ever changed its return policy to specifically address return fraud, nearly two-thirds (64 percent) said it had.

The growing problem of return fraud has forced many retailers to adopt policies which require customers returning merchandise to show identification. Retailers have made significant progress in reducing fraudulent returns when a receipt is present, as the survey found 2.89 percent of returns with a receipt are fraudulent, down from 3.89 percent in 2010. Of those without a receipt, retailers estimate 14.02 percent of those returns are fraudulent. As a result, six in 10 (62.1 percent) now require customers returning items without a receipt to show identification. Slightly more than 10 percent of retailers require customers making returns with a receipt to show ID.

Most respondents (82.5 percent) state their return policies will remain unchanged this holiday season, on par with last year, but slightly more (12.6 percent vs. 10.9 percent in 2010) will tighten their policies to combat the typical excess return fraud they see each year during the holiday season.

According to an NRF survey conducted last December, 88.4 percent of Americans feel retailers' return policies are fair.

NRF's sixth annual Return Fraud Survey polled senior loss prevention executives at 103 retail companies in October 2011. Executives from discount stores, department stores, drug stores, supermarkets and specialty stores completed the survey.