NRF report: Holiday return fraud to cost retailers $3.7 billion

Washington, D.C. A report released Tuesday by the National Retail Federation said that the retail industry is projected to lose an estimated $3.68 billion to return fraud this holiday season, up from $2.74 billion last year.

According to the NRF annual Return Fraud Survey, which polled loss-prevention executives at 111 retail companies, return fraud will cost retailers an estimated $13.95 billion during the 2010 calendar year, up from $9.59 billion in 2009. When asked if their company has ever changed its return policy to specifically address return fraud, 65% said it had.

“Retailers are still struggling to find the appropriate balance between providing stellar customer service for their shoppers while prohibiting criminals from taking advantage of lenient return policies,” said Joe LaRocca, senior asset protection advisor for NRF. “Combating this very costly problem helps retailers keep prices low but can unfortunately involve establishing policies that inconvenience honest shoppers.”

According to the survey, the most common type of return fraud is return of stolen merchandise, which 93.5% of retailers said they have experienced in the last year. Six in 10 retailers (61.7%) said they were also victims of wardrobing -- the return of used, non-defective merchandise such as special-occasion apparel and certain electronics -- within the last year, up from 46.2% in 2009.

Additionally, 88.8% said they have had a problem with employee return fraud, 68.2% have experienced the return of merchandise purchased on fraudulent or stolen tender, and 35.5% have found criminals using counterfeit receipts to return merchandise.

As a result of rampant fraud, the survey found that many retailers have begun to adopt policies that require customers returning merchandise to show identification. Retailers estimate that 3.89% of returns with a receipt are fraudulent, but that number skyrockets to 12.61% for returns without a receipt. As a result, 67% of retailers now require customers returning items without a receipt to show identification, which reduces fraud. One in five retailers (21.1%) requires shoppers with a receipt to show ID.

While 83.6% of retailers’ policies will remain unchanged this year, 5.5% said they will loosen their holiday return policies and 10.9% said they will tighten policies. According to the survey, 33% of retailers said their return policies are more flexible during the holiday season in order to accommodate shoppers who may be purchasing gifts.