Holiday fraud may cost stores billions

Retail sales are expected to rise this season, but so are cases of fraudulent returns involving stolen merchandise, counterfeit receipts and other tactics.

By TheStreet Staff Nov 11, 2010 10:50AM

Shopping bags © Photodisc / Getty ImagesBy Jeanine Skowronski, MainStreet


Holiday sales are projected to rise but retailers should worry about one downside this season: return fraud.


According to a report from the National Retail Federation, return fraud this holiday season is expected to increase by 34%, with retailers projected to lose an estimated $3.68 billion to customers' dirty dealings.


Last year, the federation estimated that stores would lose $2.74 billion on sketchy returns, and the fraud is projected to cost retailers $13.95 billion in total this year, up from $9.59 billion in 2009.


The most common type of return fraud, the report notes, is the return of stolen merchandise, which 93.5% of retailers experienced in the past year.

Second most common are fraudulent returns from employees, which 88% of retailers experienced. In addition, 68.2% of stores have experienced the return of merchandise purchased with counterfeit money. Counterfeit receipts were also a popular choice, with 35.5% of retailers experiencing it.


Fraudsters are also resorting to new tactics this year, perhaps in light of many stores' tightened return policies. The return of used, nondefective merchandise like special-occasion apparel and certain electronics, referred to as "wardrobing," increased significantly this year, with 61.7% of retailers identifying it as a problem, compared with 46.2% in 2009.

In lieu of raising prices to recoup the losses, many retailers have taken a tougher stance against merchandise returns this year. When retailers were asked if they had ever changed return policies specifically to address return fraud, nearly two-thirds (65%) said they had and 11% said they plan to institute even more stringent return policies this holiday season.


"Combating this very costly problem helps retailers keep prices low but can unfortunately involve establishing policies that inconvenience honest shoppers," Joe LaRocca, a senior asset protection adviser for the NRF, said in a press release.


According to the survey, retailers estimate that 3.89% of returns accompanied by a receipt are fraudulent. The number increases to 12.61% when you consider returns made without a receipt. As a result, 67% of retailers now require customers who return items without a receipt to show identification to reduce fraud. More than 21% require shoppers with a receipt to show ID as well.


The NRF conducted its annual Return Fraud Survey in October by polling senior loss-prevention executives at 111 retail companies. Executives from discount stores, department stores, drugstores, supermarkets and specialty stores participated in the survey.


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Tags: retail
Nov 11, 2010 6:15PM
yes  but fact   we cant live in the debt we are taking on    its not hard to understand   if we are in 14  Trillion debt   we are sunk
Nov 11, 2010 4:30PM
I am so glad I don't read these headlines on how about bad Cisco is doing. It is unfortunate to base stocks going down on these headlines, it is really not bad news it is great for people who really know how to invest and are not interested in speculation. Once again thank you Street Staff. Thank you for the great sale on stocks today, I am sure you love paying higher prices for homes, cars, boats..... makes sense to me.
Nov 11, 2010 11:20AM
why should they be worried the tax payers can pay off any fraud related charges. m-m-m-M goodMartini glassOpen-mouthedMartini glass
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