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Return fraud to cost retailers $2.9 Billion during holiday season

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Return fraud costs retailers billions of dollars every year in the form of criminals who return stolen merchandise, use counterfeit receipts, or even return items already worn and/or used that are not defective. According to NRF’s 2012 Return Fraud Survey*, completed by loss prevention executives at 60 retail companies, the industry will lose an estimated $8.9 billion to return fraud this year, and $2.9 billion during the holiday season alone. Overall, retailers estimate 4.6 percent of holiday returns are fraudulent.

“Return fraud comes in a variety of forms and continues to present challenges for retailers trying to grapple with the sophisticated methods criminals are using to rip off retailers,” said NRF Vice President of Loss Prevention Rich Mellor. “Even more troubling is the fact that innocent consumers often suffer because companies have to look for ways to prevent and detect all types of crime and fraud in their stores, oftentimes resorting to shorter return windows and limitations on the types of products that can be returned.”

According to the survey, nearly all (96.5%) retailers polled say they have experienced the return of stolen merchandise in the last year, and 84.2 percent report that they have experienced the return of merchandise purchased on fraudulent or stolen tender. Wardrobing – the return of used, non-defective merchandise like special occasion apparel and certain electronics – is a huge issue, with nearly two-thirds (64.9%) saying they have been victims of this activity within the last year. Additionally, 45.6 percent have found criminals using counterfeit receipts to return merchandise. Employee return fraud or collusion with external sources is also a big problem for retailers: eight in 10 (80.7%) report they’ve dealt with this issue in the past year.

For the first time NRF asked loss prevention executives about return fraud with the use of e-receipts, and nearly two in 10 (19.3%) say they have dealt with e-receipt return fraud. As online sales continue to grow, 86.0 percent say they allow customers to return merchandise purchased online in their stores, and retailers estimate 3.9 percent of those returns are fraudulent.

“Many shoppers love the convenience and flexibility that digital receipts offer them, and unfortunately criminals are finding ways to manipulate them,” said Mellor. “Return fraud in any form is a serious threat, and we know that retailers have made significant strides in their fight against retail crime, and are continuing their efforts working with law enforcement to address this multi-billion dollar problem.”

When it comes to their company’s holiday return policy, most respondents (83.1%) say their return policies will remain unchanged compared to last holiday season, and 10.2 percent say they will actually loosen their policies to help ease the process for gift givers and recipients.

The problem of return fraud has forced many retailers to adopt policies which require customers returning merchandise to show identification. Retailers estimate that 13.4 percent of the returns made throughout the year without a receipt are fraudulent. As a result, nearly three-quarters (73.2%) now require customers returning items without a receipt to show identification. Just seven percent (7.1%) of retailers require customers making returns with a receipt to show ID, and more than one-quarter (26.8%) say they do not require identification during the return process.

* This year’s survey methodology has changed and now incorporates annual and holiday sales data that includes non-store and auto parts stores into its calculations for estimated annual and holiday season return fraud, and as such is no longer comparable to previous years’ data.

About the survey

NRF’s 2012 Return Fraud Survey polled senior loss prevention executives at 60 retail companies in October 2012. Executives from discount stores, department stores, drug stores, supermarkets and specialty stores completed the survey.

As the world’s largest retail trade association and the voice of retail worldwide, NRF represents retailers of all types and sizes, including chain restaurants and industry partners, from the United States and more than 45 countries abroad. Retailers operate more than 3.6 million U.S. establishments that support one in four U.S. jobs – 42 million working Americans. Contributing $2.5 trillion to annual GDP, retail is a daily barometer for the nation’s economy. NRF’s Retail Means Jobs campaign emphasizes the economic importance of retail and encourages policymakers to support a Jobs, Innovation and Consumer Value Agenda aimed at boosting economic growth and job creation.

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