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Return fraud

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Return fraud is the act of defrauding a retail store via the return process.[1] There are various ways in which this crime is committed. For example, the offender may return stolen merchandise to secure cash, or steal receipts or receipt tape to enable a falsified return, or to use somebody else's receipt to try to return an item picked up from a store shelf. Return abuse is a form of "friendly fraud" where someone purchases products without intending to keep them.[2] Perhaps the most well-known form of this abuse is "wardrobing" or "free renting" – in which the person makes a purchase, uses the product(s), and then returns the merchandise.[3][4]

The retail industry experiences a significant fraud and abuse problem, losing money in the range of $24 billion per year, roughly 7% of all returns and exchanges.[5]

In order to offset and recover the losses incurred from fraudulent returns, retailers raise prices for shoppers.[6] Some stores create strict return policies such as "no receipt, no return" or imposed return time restrictions such as a 30-day limit on all returns that impact all shoppers.[7]

Some returned merchandise must be discounted or discarded after return. For example, after being returned, out-of-season clothing may have to be sold at a discount, and some clothing items such as lingerie may have to be discarded for health reasons.[8]

Types

Some examples of the return fraud and abuse problems include:[9]

  • Wardrobing or renting: Purchasing merchandise for short-term use with the intent to return the item, such as a dress for a special occasion, a video camera for graduations and weddings or a big-screen television for the Super Bowl.[3]
  • Returning stolen merchandise: Shoplifting with the objective to return the item(s) for full price, plus any sales tax.
  • Receipt fraud: Utilizing reused, stolen or falsified receipts to return merchandise for profit. Alternatively, returning goods purchased on sale or from a different store at a lower price with the intention of profiting from the difference.[10]
  • Employee fraud: Assistance from employees to return stolen goods for full retail price.
  • Price switching: Placing higher priced labels on merchandise with the intention of returning the item(s) at a higher price than purchase.
  • Price arbitrage: Purchasing differently priced, but similar-looking merchandise and returning the cheaper item as the expensive one.
  • Switch fraud: Purchasing a working item, and returning a damaged or defective identical item that was already owned.
  • Bricking: Purchasing a working electronic item, and deliberately damaging or stripping it of valuable components to render it unusable, then returning the item for profit.
  • Cross-retailer return: Returning or exchanging an item purchased at another retailer (usually at a lower price) for cash, store credit or a similar, higher-priced item at another retailer.
  • Open-box fraud: Purchasing an item from a store and returning it opened with the intent to re-purchase it at a lower price under the store's open-box policies. A variation of price-switching.

Return policies have historically served as the primary way for retailers to combat return fraud and abuse; the challenge is keeping policies from being overly restrictive and/or inconsistently interpreted, both of which may discourage loyal customers and affect purchases.[8] Separately, automated solutions have also been developed to help combat return fraud and abuse, including software programs that detect such behavior and help retailers determine whether a return is valid.[11]

See also

  • Claude Allen, assistant to U.S. President George W. Bush who resigned after being arrested for return fraud

References

  1. ^ Larson, Aaron (20 May 2016). "Shoplifting Laws and Punishments". ExpertLaw.com. Retrieved 12 September 2017.
  2. ^ "Retail Refund Fraud and Abuse". LPM Insider. 21 January 2013. Retrieved 12 September 2003.
  3. ^ a b Roberts, Deborah; Orso, Alberto (3 December 2008). "Buy, Wear, Return, Repeat". ABC News. Retrieved 12 September 2017.
  4. ^ Rosenbaum, Mark S.; Kuntze, Ronald (May 2005). "Looking good at the retailer's expense: investigating unethical retail disposition behavior among compulsive buyers". Journal of Retailing and Consumer Services. 12 (3): 217. doi:10.1016/j.jretconser.2004.07.001.
  5. ^ "Naughty or nice: 3 things to know about fraud during the holiday season". NRF. Retrieved 2020-09-07.
  6. ^ Kavilanz, Parija B. (11 November 2009). "Store theft cost to your family: $435". CNN Money. Retrieved 12 September 2017.
  7. ^ Kokemuller, Neil. "Merchandise Return Policies". Houston Chronicle. Retrieved 12 September 2017.
  8. ^ a b Rittman, Tom. "7 Surprising Ways Retailers Lose Money". Retail Info Systems. Retrieved 12 September 2017.
  9. ^ Rittman, Tom (3 December 2012). "Nine Tactics Consumers Use to Make Fraudulent Returns". Chain Store Age. Retrieved 12 September 2017.
  10. ^ Hutton, Caleb (2018-08-04). "Elaborate shoplifting schemes often feed thieves' drug habit". HeraldNet.com. Retrieved 2020-11-14.
  11. ^ Cardone, Caroline; Hayes, Read (2 August 2017). "The Evolving Impact of Return Fraud and Abuse". LPM Insider. Retrieved 12 September 2017.
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