NRF: Return fraud to cost retailers $3.7 billion in holiday ‘10

Retail Editor 8, November 9, 2010

Washington - Return fraud looks like it will be a bigger headache for retailers this holiday season, with the National Retail Federation estimating the industry to take $3.68 billion in losses compared to holiday 2009's $2.74 billion.

NRF's annual Return Fraud Survey, completed by loss prevention executives at 111 retail companies, found that return fraud will cost retailers an estimated $13.95 billion during the full 2010 calendar year, up from $9.59 billion in 2009.

Fine-tuning return policies has become "both a science and an art as retailers continue to grapple with roller-coaster return fraud rates," NRF said. When asked if their company has ever changed its return policy to specifically address return fraud, nearly two-thirds of participating retailers - 65% - said yes.

"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, NRF senior asset protection advisor. "Combating this very costly problem helps retailers keep prices low but can unfortunately involve establishing policies that inconvenience honest shoppers."

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. Also, "wardrobing," which is the return of used and non-defective merchandise like special occasion apparel and certain electronics, also poses a huge problem, as 61.7% said they been victims of this activity 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.

Many retailers have begun to adopt policies which require customers returning merchandise to show identification, NRF noted.

Retailers estimate that 3.89% of returns with a receipt are fraudulent, but that number jumps to 12.61% for returns without a receipt. As a result, 67% 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 identification.

While the majority of retailers' policies will remain unchanged this year (83.6%), 5.5% of retailers said they will loosen their holiday return policies while 10.9% will tighten. According to the survey, one-third (33%) of retailers say their return policies are more flexible during the holiday season in order to accommodate shoppers who may be purchasing gifts.

According to an NRF survey conducted last December, 87.9% of Americans feel retailers' return policies are fair.


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