Retailers saw some success in 2023 on their efforts to mitigate the volume and cost of product returns by shoppers, knocking the total return rate for 2023 down to 14.5% as a percentage of sales, from roughly 17% the previous two years, according to reports from the National Retail Federation (NRF).
However, a year-end report from NRF and Appriss Retail shows that the portion of those returns due to fraud and abuse has continued to climb. Total returns for the industry amounted to $743 billion in merchandise in 2023, including 17.6% for online sales and 10.02% for pure bricks-and-mortar returns (excluding online orders that are returned in-store, known as BORIS). Of that total, return fraud contributed $101 billion in overall losses for retailers, meaning that for every $100 in returned merchandise, retailers will lose $13.70 to return fraud, the report said.
Among the types of return fraud retailers say they have experienced in the past year, nearly half (49%) cited returns of used, non-defective merchandise, also known as wardrobing, and 44% cited the return of shoplifted or stolen merchandise. Over one-third (37%) said they experienced returns of merchandise purchased on fraudulent or stolen tender (such as stolen credit cards) and one-fifth (20%) said they have experienced return fraud from organized retail crime groups.
However, the question of NRF’s own estimates of the prevalence of organized retail crime has been a fraught issue in recent months, as the group recently retracted its published statistics on that cause of fraud, saying it has been growing but is difficult to quantify.
Other variables are also tough to track, since the NRF and Appriss report said its fraud count also included common retail practices such bracketing—when consumers buy multiple units of the same or similar items, have them shipped, keep one, and return the rest—and wardrobing—when a shopper buys an expensive item, wears it, and then returns it.
The question of exactly how to measure fraud in product returns shows the difficult balance that retailers are trying to strike between clamping down on abuse and pleasing customers to boost shopper loyalty. Still, as concerns around return fraud continue to grow, retailers are bolstering their efforts to mitigate the related losses.
With increases in both in-store and digital traffic, many retailers are testing in-store policy changes and limiting the flexibility of online returns, the report said. For example, in 2022, retailers allowed 22.1% of returns to be accepted without a receipt, but in 2023 that number has dropped by half. That’s because NRF survey data estimates that 17% of non-receipted returns are fraudulent, an increase from 14% in 2022.
But as retailers implement “no-receipt, no-return” policies, fraudulent actors turn to other tactics, like counterfeit returns. Specifically, shoppers are using counterfeit online purchase confirmations (digital receipts) at an increasing rate to commit return fraud in stores. And other scammers are abusing retailers’ claims and appeasements policies by asking for a store credit of some kind to compensate them for online orders that were allegedly not received, were received damaged, or have another type of defect.
“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 in a release. “Retailer’s 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.”
