Return Fraud Represents $2.2 Billion In Lost Sales – Omnichannel Retailers Are Particularly Vulnerable

But the use of cross-platform also have advantages that others don’t, like customer identification, that could offset their specific vulnerabilities.

NRF's Robert Moraca
NRF’s Robert Moraca

The problem of “return fraud,” which relates to stolen merchandise and the use of falsified receipts that are exchanged for cash or store credit, appears to exact an even greater toll when retailers rely on omnichannel  strategies that are intended to close the loop on e-commerce and making purchases in person.

According to NRF, return fraud, which includes activities like removing valuable parts from electronics before returning them, could cost retailers $2.2 billion over the holiday season. Total returns in general will be closer to $260 billion, but non-fraudulent returns can at least have part of that loss recouped through reselling or recycling parts. Fraudulent returns however represent a complete loss of sales.

“Return fraud remains a critical issue for retailers with the impact spanning far and wide, in-store and online,” said NRF Vice President of Loss Prevention Bob Moraca, in a statement. “While technology has played a significant role in deterring many in-person fraudulent transactions that would have otherwise gone unseen, there is little that can be done to prevent a determined criminal who will find a loophole one way or another. When it comes to retail fraud, retailers can build taller walls, but criminals continue to find taller ladders.”

The problem of return fraud is made more complex when factored in with the modern retail tendency towards omnichannel. As customers are able to interact with retailers from a wider variety of channels (in-store, mobile, desktop) so too do the ways of keeping track of purchased and returned products become more difficult.

“[T]rends such as omni-channel retail and tighter regulation are making reverse logistics increasingly complex,” wrote Lisa Terry for Inbound Logistics. “Better use of data, a more end-to-end perspective, and prevention programs are helping to reduce return rates for some operations, but there is still room for improvement.”

But omnichannel retailers do have the advantage of being able to have more knowledge of who their customers are, discouraging them from returning fraudulent merchandise and disappearing with their refunds.

“The more information retailers can collect from a customer, the better they can head off fraud and nail down the reason for the return,” Terry wrote.

By identifying who their customers are, and relying more heavily on e-receipts and other digital retail technologies, retailers can offset the vulnerabilities that come with an open, omnichannel business model.

“We expect retailers to continue their tried and true ways of combating fraud through increased usage of identification verification, as well as seeking new and innovative approaches on the back end,” Moraca said.

About The Author
Daniel Parisi Daniel Parisi @daniel_parisi_

Daniel Parisi is a New York City-based writer and recent graduate of the University of Maryland. Daniel specializes in coverage of mobile payments, loyalty programs, and the Internet of Things.