Not-So-Happy Returns: Retail Federation Highlights “Wardrobing” Costs

The holidays are over, but stores big and small will be dealing with more than the memories.

That’s according to the National Retail Federation (NRF), which reported late last month that during the holiday season alone, retailers could face as much as $3.8 billion in lost revenue from fraudulent returns, an increase from $3.4 billion in 2013 and a big chunk of the estimated $10.9 billion in return fraud in 2014 as a whole.

The organization’s 2014 Return Fraud Survey  (opens in a new tab) [PDF], which gathered responses from loss-prevention executives at 60 retailers, shows that retailers suspect that 5.5 percent of holiday returns are fraudulent. And while technology has helped curb illegitimate returns, NRF said, there’s only so much companies can do about retail fraud, which is often suspected to be the work of crime rings.

“Today’s sophisticated technology does well keeping criminals at arm’s length but often isn’t enough to completely stop the unethical practices of organized and individual retail fraud occurrences,” Bob Moraca, NRF’s vice president of loss prevention, said in a news release  (opens in a new tab).

The problem is a near-universal one, with 92.7 percent of respondents saying they experienced the fraudulent act of having stolen merchandise returned in 2014. Although this is a slight decline from 2013’s 94.8 percent, the more troubling issue for retailers is that the perpetrators of retail fraud appear to be growing more organized. According to the survey, 78.2 percent of respondents say they’re seeing return fraud from organized-retail-crime groups, a sharp increase from the prior year (60.3 percent).

The survey also cited a rise in “wardrobing,” where a customer uses a piece of merchandise and then returns it shortly thereafter. Nearly three quarters of retailers (72.7 percent) had instances of wardrobing in 2014, a significant increase from 62.1 percent in 2013.

Many retailers have changed their return policies in an effort to rein in fraud while continuing to offer the service to legitimate customers. “Return fraud has become an unfortunate trend in retail thanks to thieves taking advantage of retailers’ return policies to benefit from the cash or store credit they don’t deserve,” Moraca said.

(iStock/Thinkstock)