Fraudulent Returns Cost Retailers $2.2 Billion

fraudulent returns Adobe Stock

Returns are an expected part of the holiday season. Fraudulent returns, however, continue to be a problem for retailers, with the National Retail Federation estimating they will cost the industry $2.2 billion this year, up from $1.9 billion last year.

NRF data also shows retailers expect 3.5% of the returns made this holiday season will be fraudulent, meaning someone is trying to return stolen merchandise or used goods in exchange for cash, for instance. This is also up from the 3% of fraudulent returns in 2014.

Additional data from the NRF Return Fraud Survey includes:

  • 91.1% of retailers said they have experienced a consumer trying to return stolen merchandise this year
  • 72.6% said they had experienced someone trying to return used, non-defective merchandise, called “wardrobing,” in the past year
  • 77.4% of retailers said they experienced employee return fraud or had an employee work with external people to commit return fraud
  • 10% of returns made without a receipt are fraudulent, according to retailers’ estimate. This is up from last year’s estimate of 5%.

E-Receipts More Common in Return Fraud

Interestingly, as the use of electronic receipts, or e-receipts, has increased, so too has the use of e-receipts in return fraud. A third of retailers, or about 34%, in the NRF survey said they had experienced a fraudulent return with the use of e-receipts. This is up from the 18.2% from last year.

Clothing Tops the List of Most Returned Item

About $70 billion worth of merchandise is returned during the holiday season, according to research by Optoro, a reverse logistics solution provider. What’s the most popular returned item? Clothing. A 2014 report from MarketTools said clothing accounts for 62% of all returns during the holiday season.

Free Returns At a Cost to the Company

With the rise of online shopping, 49% retailers are increasingly offering free returns, according to NRF data. While these free returns are appealing to the consumer, they come at a cost to the company. Zappos is one company offering free returns, but it considers the cost a “marketing expense.” This is a smart strategy for companies looking to remain competitive. Research shows consumers are twice as likely to shop from an online retailer and are willing to spend more if they know they can return the merchandise for free.

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