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

Washington, D.C. -- Survey results released Thursday by the National Retail Federation found that fewer retailers expect return fraud rates to grow this holiday season, due in part to stronger checks and balances and to enhanced return policies.

According to NRF’s annual Return Fraud Survey, completed by loss prevention executives at 103 retailers, 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, 89.1% retailers say they have experienced the return of stolen merchandise in the last year, and just as many (89.1%) 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 61.4% of retailers say they been victims of this activity within the last year.

Additionally, 81.2% say they have experienced the return of merchandise purchased on fraudulent or stolen tender, and 38.6% 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%) 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% of returns with a receipt are fraudulent, down from 3.89% in 2010. Of those without a receipt, retailers estimate 14.02% of those returns are fraudulent. As a result, 62.1% now require customers returning items without a receipt to show identification. Slightly more than 10% of retailers require customers making returns with a receipt to show ID.

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