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On the Lookout for Holiday Fraud


With fraudulent returns on the rise, many retailers are tightening their refund and exchanges policies.

The National Retail Federation as well as state retail and merchant associations are warning stores to gear up for fraudulent store returns. Holiday return fraud is expected to cost retailers $2.2 billion this year, up 15% over 2014 levels, according to a National Retail Federation survey recently released, and that expense is being passed along to American families. Nine in 10 retailers said they have experienced the return of stolen merchandise. The return of used merchandise has also affected three-quarters of the retailers surveyed this past year.

Aside from shoplifters trying to cash in on their crimes, other shady schemes include returns using fake receipts, returns of used merchandise and merchandise purchased on a stolen or fraudulent credit cards. “Wardrobing,” or the return of used, non-defective merchandise, impacts 72.6% of retailers, making it the second biggest fraud problem they deal with.

Retailers surveyed said that about 3.5% of holiday returns are fraudulent. This is one of the biggest problems stores face during the busiest time of the year. With retailers’ profit margins already squeezed by other brick-and-mortar competition, as well as online retail; the slow start to the holiday season; and warmer weather in many parts of the country curtailing sales of winter apparel, it’s shaping up to be a tough end of year for retailers.

One of the biggest problems is returning an item without a receipt. Retailers estimate that 10% of these types of returns are fraudulent. As a result, 85% of those stores are requiring identification when making a return, up from 71% last year. And national and state retail associations are advising all retailers to issue and check gift receipts when shoppers come to exchange or return items.  More sophisticated measures are also being instituted like deploying proven security and loss prevention tools such as RFID tags and IoT-connected devices in the store.

Bloomingdales outfits clothes with special tags so that, once removed, the clothes cannot be returned. Electronics retailers charge restocking fees to discourage post-Super Bowl returns.

Predictive analytics fed with streaming data like upcoming big events, historical and holiday events, can help retailers predict with greater certainty when return fraud will increase. This allows store managers to increase staff and be vigilant in enforcing rules and preventing fraudulent returns.

Using this same methodology, employee fraud can be predicted by looking at the history of past fraudulent returns and comparing these with staff who were working during those times. Predictive analytics can determine which days return fraud is likely to increase and management can install security measures like cameras to derail employee misdeeds.

Investing in current security measures and diligent employee screening can deter internal fraud and theft. Video intelligence systems can not only monitor all point-of-sale transactions, but also can measure the performance of each employee and identify unusual, frequent or fraudulent transactions.

Stores with high walk-in traffic are even more prone to theft, return fraud and other schemes, so video surveillance is important to use—not only to identify return fraud but also to monitor and improve store execution and profitability.

The NRF estimates total returns for 2015, including the holiday season and fraud, will total $260.5 billion.

TAGS: retail trends, retail, retailers,
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