Retailers Battling Record Wave Of Holiday Return Fraud

U.S. retailers face an ominous new challenge in the wake of the Christmas holiday season. Billions in revenue are being lost to an unprecedented wave of fraudulent returns, including badly damaged items, counterfeits and phony receipts.

According to the National Retail Federation (NRF), American retailers lost a staggering $101 billion due to return fraud in 2023. That doubled the total of 2020 and accounted for 14% of all returned merchandise.

The challenge, according to NRF Executive Director of Research Mark Mathews, is to find ways to minimize losses while keeping the customer experience positive.

He reported retailers’ efforts include “providing greater detailed descriptions on sizing and fit of products for online purchases and requiring a receipt with returned items.”

The sheer volume of criminal fraud, however, is putting immense pressure on some businesses to stay afloat. Industry expert Tom Enright told the Wall Street Journal that scammers are using return shipping labels to receive refunds before the retailer confirms they received the correct item.

Some companies issue refunds upon the delivery service scanning the return label. This means anything may be put in the box to give the illusion that the purchased item is indeed being shipped back.

Gartner analyst Tom Enright told the Journal that people are “sending back a box of bricks instead of a television set.” Fraudsters are also shipping back lower-priced merchandise with a higher price tag attached.

Still others are sending counterfeit items to luxury retailers in an attempt to get a refund before the deception is discovered.

One issue is that companies employ many temporary workers during the holiday season. These employees are likely not as well trained to detect fraud as the regular staff.

Then there’s the organized retail theft sweeping certain parts of the country. Some California jurisdictions, for example, virtually ignore shoplifting. This only encouraged mobs of thieves to descend onto stores knowing that even if they are apprehended, the punishment will be minor to nonexistent.

The goods they make off with are many times returned to other establishments for a refund.

There’s another trend called “wardrobing” in which a buyer wears a purchased item before returning it used or damaged. The loss is undiscovered until after the refund is processed, leaving the retailer holding the bag.