NRF: Return Fraud to Hit $3.7 Billion this Holiday Season

Loss prevention executives anticipate that nearly 9 percent (8.93%) of holiday returns this year will be fraudulent, up slightly from 8.67 percent last year, according to the National Retail Federation's second annual Return Fraud Survey.

As a result, return fraud will cost retailers an estimated $3.7 billion this holiday season, up from $3.5 billion last year. Retailers will lose $10.8 billion to return fraud in 2007.

Despite the prevalence of fraud, more than a third of retailers (35%) have stated they made their return policies more lenient during the holidays to accommodate holiday shoppers. Common practices include retailers extending the amount of time for returns to be made and also being more flexible to customers without a receipt.

"Many retailers offer more lenient return policies during the holiday season to accommodate honest customers," says NRF VP of Loss Prevention Joseph LaRocca. "But unfortunately, retailers must constantly balance the desire to take care of their customers with the undisputed fact that criminals are constantly looking to take advantage of return policies."

According to the survey, completed by 60 retail loss prevention executives last month, nine out of 10 retailers (92%) have had stolen merchandise returned to stores within the past year. Retailers also report being victimized by returns of merchandise originally purchased with fraudulent or stolen tender (83.1%) and returns using counterfeit receipts (51%).

The unethical practice of "wardrobing," the return of non-defective, used merchandise, is also escalating in the industry. Nearly two-thirds of retailers (66.1%) have been victims of wardrobers in the past year — up from 56 percent last year.

According to the survey, consumers will not see a drastic shift in holiday return policies this year with four in five retailers (81.4%) implementing the same holiday return policy as last year, while 15.3 percent will tighten their policies (vs. 25.0% in 2006) and 3.4 percent will loosen policies (vs. 4.8% last year).