Retailers Losing Money Due To Fraudulent Consumer Returns

As everyone regroups from the holiday season, it’s common to see American consumers returning and exchanging items they received for Christmas. Unfortunately, merchants are also dealing with a common phenomenon: fraud.

Retailers nationwide are finding fraudulent receipts and badly damaged or counterfeit items that were returned for a full refund.

According to the National Retail Federation (NRF), the U.S. saw over $101 billion in merchandise fraudulently returned in 2023.

For every $1 billion the average retailer makes in sales, they receive around $145 million in merchandise returned, according to the report, leaving some retailers in the red due to not making much profit.

Many retailers had already reported losing money due to theft, starting in 2020 during the pandemic. According to a National Retail Security Survey (NRSS), 88% of retailers surveyed reported an increased risk for their companies due to the pandemic.

With the latest fraud techniques used by consumers, many retailers are on the lookout to protect their companies.

The NRF found that the most common type of return is “wardrobing,” which occurs when a customer returns clothing which was was worn, stained, or torn and then returned for a refund.

In a new report by Optoro, Inc., 64% of consumers admitted purchasing from one retailer over another solely based on the company’s return policy. Many Americans also admitted to exaggerating the reason for their return to receive a refund or avoid fees.

Inflation has been a factor in consumers’ frequency of returning items. Once a consumer has received their product, some admit to not being able to afford the purchase and make up a reason for their return.

Whatever the reason, retailers are coming up with new ways to deter fraudulent returns, including limiting the return time and having the consumer pay for shipping and restocking fees.

“Retailers continue to test and implement new ways to minimize losses from returns, particularly those that are fraudulent, while at the same time optimizing the shopping experience for their customers,” NRF Executive Director of Research Mark Mathews said. “Retailers’ efforts include providing greater detailed descriptions on sizing and fit of products for online purchases and requiring a receipt with returned items. As a whole, the industry is prioritizing efforts to reduce the amount of merchandise returned in stores and online.”