The National Retail Federation estimates that return fraud cost merchants $14.37 billion in 2011 up from $13.66 billion in 2010. In a survey of over 100 retailers the NRF found that return fraud affects an overwhelming majority of merchants through various types of friendly fraud schemes.
According to the NRF survey over 89 percent of retailers had stolen merchandise returned in the twelve months leading up to the survey while the same percentage of respondents indicated that employee fraud and collusion was a problem as well. The survey found that nearly 3 percent of returns when the customer had a receipt were fraudulent in 2011, an improvement from nearly 4 percent in 2010. Returns without a receipt, however, had a much higher fraud rate: over 14 percent. For this reason now more than 62 percent of retailers require a consumer to show ID if they are making a return without the receipt.
Another common friendly fraud scheme is wardrobing, which as the name implies affects the clothing and apparel verticals. Wardrobing refers to the return of goods that have been lightly used and then returned, although the goods are not defective. While apparel is implicit in the term wardrobing this scheme is often applied to electronics and other goods as well, such as someone purchasing an HDTV for a Super Bowl party and returning it the next day. More than 60 percent of retailers surveyed indicated they had experienced wardrobing (not limited to apparel) in the twelve months leading up to the survey.
Other return fraud schemes include buying goods with stolen or fraudulent funds or billing instruments and then making a return, which over 80 percent of surveyed retailers experienced, as well as returning merchandise with counterfeit receipts, something nearly 40 percent of retailers experienced in the twelve months leading up to the survey. When asked if their company has had to update or change their return policies specifically to address return fraud 64 percent of retailers said they have made adjustments for such reasons.
For more information: Return Fraud Cost Retailers $3.5 Billion This Holiday Season, According to NRF Survey
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