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Global insight: Return fraud costing retailers billions

One of the biggest retail crime issues for US retailers is the practice of 'wardrobing', or the return of used, non-defective merchandise such as special occasion clothing, according to the latest National Retail Federation (NRF) Return Fraud Survey.

Although businesses operating in the sector have employed specific tactics to help curb this trend, some 62.1% of companies surveyed for the report said they have been victims of wardrobing.

But wardrobing is just one of a number of fraudulent activities that retailers must deal with, as they are expected to lose an estimated $3.39 billion to return fraud this holiday season alone. The NRF said that the total lost to return fraud for the entire year is expected to reach $8.76 billion, but it is the busy festive season where many of these problems can come to a head.

A total of 5.8% of holiday returns this year were classed as fraudulent, which is up slightly from 4.6% in 2012.

NRF vice president of loss prevention Rich Mellor commented: "While coverage of this issue paints return fraud as one of the 'less severe' retail crimes, the fact of the matter is that returning used or stolen items, or even using false tender to purchase items is fraud, period.

"Recent efforts to combat fraudulent activity are slowly starting to work, but criminals are becoming savvier and technologically advanced in their methods, making it even more difficult for retailers and law enforcement to keep up with the growing problem."

The survey indicated that 94.8% of retailers have experienced the return of stolen merchandise in the last year, while 69% said that they have experienced the return of merchandise purchased on fraudulent or stolen tender. Additionally, 29.3% have found criminals using counterfeit receipts to return merchandise.

For the first time, the NRF has included a question about tender fraud in its survey, and almost a third of businesses said they have witnessed an increase in credit card fraud compared to last year, while 18.2% said this type of incident has decreased.

On a scale of one to five, with one representing ineffective, retailers currently rank their current policies at 3.55 in terms of deterring return fraud.

The NRF Return Fraud Survey was completed by loss prevention executives at 62 retail companies in October and November 2013. Representatives from discount stores, department store chains, drug stores, supermarkets and speciality retailers participated in the research.

Data awareness

As online retailing has continued to grow exponentially over the last few years, consumers themselves are becoming more aware of personal data security. Recent research from technology vendor Fujitsu, in conjunction with One Poll, has revealed that 9% of consumers have faith in organisations to protect their data, with nearly a third recording a decline in trust over the last 12 months.

David Robinson, chief security officer, at Fujitsu UK & Ireland, remarked: "With consumers battling to understand the impact on their personal information if a company is hacked, there is no room for error anymore.

"To remain ahead of their competitors – and trusted in the eyes of the consumer – organisations need to ensure they are robust in their security.

"The effort required here is industrial, as companies are no longer fighting against individuals, but a sophisticated criminal industry, designed solely to access their data. We describe organisations in two groups, those who have been hacked, and those who will be, for no reason."