Return fraud plagues retailers, costs industry over $100B in 2023

The busy return season following the winter holidays is here, and retailers are on high alert for the array of return scams that are likely to impede their profits. 

Return fraud is a major concern for retailers as organized retail crime continues to run rampant throughout the industry, according to Mark Mathews, executive director of research for the National Retail Federation (NRF). 

This type of fraud occurs when a person abuses a merchant's return policy, which can be done through a variety of means. It's already caused over $100 billion in overall losses for retailers last year, according to recent NRF data. 

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However, this type of scam isn't just carried out by organized crime groups, which have grown in scale and complexity. It's also an issue with everyday customers.

"There are different motivations," Mathews said. Criminals seek out this type of fraud to generate cash. For instance, in some cases, criminals will look for receipts that were thrown away and use them to return the same item to collect cash, or they will try and replicate receipts for stolen products.

In other cases, customers may seek out this type of scam because they want to use a product before returning it. This type of return fraud is called "wardrobing," and is one of the most common, according to Mathews. 

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In 2023, the total return rate was 14.5%. Of those, the NRF expects 13.7% to be fraudulent, according to Mathews. 

Although it's hard to predict what the fraud rate will be in the new year, there isn't any indication that the problem is going to go away despite retailers' efforts to thwart returns, he said. 

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Organized retail crime gangs, in particular, are still going to try and game the system. 

"This has been an extremely lucrative business for them," he said. "They're not just going to walk away from this."

The issue is that returning items in general is a costly process for retailers. When items are returned, they will be sent to a return center to be inspected, repacked and shipped back to the store if it's not defective. But "in many cases, it actually has to be thrown away because it wasn't handled properly," he said.

To try and mitigate the process of returns, companies have been making it easier for consumers to understand whether an item is right for them before purchasing.

This includes adding more information about products online and enhancing technology so that customers can virtually try on fashion products or see what a piece of furniture would look like in their home, for instance.