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Fraudulent Returns Cost Retailers Billions Annually

Retail product return fraud is a significant problem for retailers, costing the industry billions of dollars each year. This type of fraud occurs when individuals steal products from stores and then attempt to return them for a full refund. Not only does this result in a financial loss for retailers, it also contributes to shrinkage, which is the term used to describe the reduction of inventory due to theft, damage, or other losses.

We are in a period of time, post Christmas, were many criminals take advantage of the lax return policies post holiday.  Now it the time to be extra diligent in identifying large expensive item returns, as criminals live for this time of the year.

The impact of fraudulent returns on the retail industry is significant. According to the National Retail Federation, return fraud is estimated to cost retailers $17.8 billion each year. This is equivalent to nearly 2% of all retail sales, and it is a major contributor to shrinkage in the industry. In addition to financial losses, fraudulent returns also take up valuable time and resources for store personnel, who must process and investigate the returns.

There are several defenses that retailers can install to fight fraudulent returns. One effective method is to implement a return policy that requires customers to present identification when making a return. This helps to deter individuals who may be attempting to return stolen products, as they are less likely to want to provide identification. Retailers can also track the number of returns made by individual customers and flag any unusual patterns or suspicious activity.  Retailers can also partner with one of the various 3rd party solution providers focused solely on reducing the number of fraudulent returns.

Organized Retail Crime (ORC) syndicates also use fraudulent returns as an avenue to turning their massive amounts of stolen merchandise into instant cash. Using mules to create the returns, or employing false identification, criminals have found that this is one of the easiest ways to get the maximum value of products stolen in the simplest of ways.

Another tactic that retailers can use is to implement technology to track and prevent fraudulent returns. For example, many retailers are now using radio-frequency identification (RFID) tags on their products to track inventory and prevent theft. RFID tags can also be used to help identify returned products and verify that they were actually purchased from the store. This is much better than in the past where we had high loss stores mark items with a sharpie identifying the store number in an attempt to slow down fraudulent refunds.

In addition to implementing these measures, retailers can also take steps to educate their employees on how to identify and prevent fraudulent returns. This can include training on spotting fake receipts and identifying common tactics used by individuals attempting to return stolen products. Retailers can also work with loss prevention and store operations teams to implement procedures for handling and investigating suspicious returns. To further reduce shrink from fraudulent returns in retail, loss prevention and store operations teams can focus on improving overall store security. This can include measures such as implementing CCTV surveillance systems, training employees on loss prevention techniques, and implementing security protocols for handling cash and high-value items.

There are also a number of steps that individuals can take to prevent fraudulent returns. These include being aware of store return policies and understanding the requirements for making a return, as well as being vigilant about protecting personal identification documents. Retailers can also provide customers with information on how to protect themselves from fraudulent returns, such as by keeping receipts and tracking their purchases.

In conclusion, retail product return fraud is a significant problem that costs the industry billions of dollars each year and contributes to shrinkage. Post holiday time is open season for criminals to take advantage of soft return policies.   Retailers can implement a number of defenses to fight fraudulent returns, including implementing return policies that require identification, using technology to track and prevent fraud, and educating employees on how to identify and prevent fraudulent returns. Loss prevention and store operations teams can also play a key role in reducing shrink from fraudulent returns by focusing on improving overall store security and implementing procedures for handling and investigating suspicious returns.

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