As Holiday Hangover Kicks In, Retailers Are Fighting Fraudulent Returns

Savvy customers and frustrated retailers are playing tug of war with fraudulent returns.

Of the $743 billion worth of returned merchandise in 2023, some 13.7% involved some form of fraud or abuse, a recent report by the National Retail Federation found. In total, return fraud contributed $101 billion in overall losses for retailers, with vendors losing $13.70 of every $100 to the fraud.

This effect is exacerbated by the holiday shopping season, when increased foot traffic is exploited by shoppers looking to make fraudulent returns, the industry trade group found. Retailers are expecting nearly $25 billion in fraudulent returns, representing 16.5% of total holiday returns.

Almost half of retailers find returns to be a severe problem, particularly during the holiday season, according to a survey of 500 U.S.-based retailers by returns solutions firm goTRG. That represents a 3000% increase from a year earlier, when just 2% of retailers said it was a severe issue.

The most common type of return fraud is so-called “wardrobing,” in which customers return clothes after having worn them out, according to the NRF. Other popular forms of fraud include returning shoplifted or stolen merchandise, returning items that were bought with fake or stolen money, employee return fraud and returns using counterfeit receipts.

More than a third of shoppers admitted to embellishing or exaggerating the reason for a return to avoid fees or receive a refund, returns technology firm Optoro found in a November survey of more than 1,000 adult consumers. And 30% of customers admitted to wardrobing. 

The growth in online shopping has given rise to new forms of return fraud. Michael Osborne, chief executive at Appriss Retail Chief, which co-published the report, said that reports of missed, late or damaged deliveries is the fastest-growing category for return fraud.

Thomas Borders, general manager of supply-chain solutions at returns-service firm Inmar Intelligence, told the Wall Street Journal that in-store returns, where employees can evaluate whether physical items have been "wardrobed" or otherwise tampered with, tend to result in “much, much, much lower fraud” than those sent by mail.

Retailers are looking to crack down on some of the more pervasive forms of return fraud. Identifiers like the Shark Tag, for example, have become increasingly popular. The brightly colored, and often unsightly, tags are removed by customers at home but cannot be reattached — a tactic used to prevent wardrobing.

Other retailers have also done away with no-receipt returns, which the NRF estimates tend to be the subject of more fraudulent returns than those requiring receipts. In 2022, retailers allowed 22.1% of returns to be accepted without a receipt. Last year, that number was halved, according to the NRF. 

Retail technology firm Narvar similarly found that roughly 40% of retailers began charging return fees in 2023, up from 31% a year earlier.

But this could alienate some potential shoppers. Some two-thirds of customers surveyed by Optoro said they would choose one retailer over another purely because of a better returns policy.