Return Fraud to Cost Retailers Nearly $4B Over Christmas

There are fewer U.S. retailers anticipating return fraud rates to increase this Christmas season compared with 2010, however, this issue remains a tremendous problem and accounts for roughly $3.5 billion in losses, according to the National Retail Federation (NRF). According to NRF’s annual Return Fraud Survey, completed by loss prevention executives at 103 retail companies, the retail industry lost $3.73 billion in returns for Christmas 2010. Annual return fraud will cost retailers an estimated $14.37 billion in 2011, which is up 5 percent from 2010, according to the NRF.

When asked if their company has ever changed its return policy to specifically address return fraud, nearly two-thirds 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 3 percent of returns with a receipt are fraudulent, down from 4 percent in 2010.

Of those without a receipt, retailers estimate 14 percent of those returns are fraudulent. As a result, 62 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 state their return policies will remain unchanged this Christmas season, on par with 2010, but slightly more will tighten their policies to combat the typical excess return fraud they see each year during the holiday season.

Joe LaRocca, the senior asset protection advisor for NRF, was optimistic given improvements made by the industry of late. ''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 retailers have experienced the return of stolen merchandise in the past year, and just as many 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 61 percent say they been victims of this activity within the past year. Additionally, 81 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.

According to an NRF survey conducted in December 2010, 88.4 percent of U.S. consumers felt that retailers’ return policies were fair.

-Rapaport