Retailers take $100B hit in bogus returns

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By Dan Sears

Retailers — already hard-hit by rampant shoplifting — are facing another threat to their bottom line from scammers who are stuffing bricks, fake receipts and counterfeit goods in return packages.

The fraudsters have targeted this retail underbelly to swipe billions of dollars by gaming the returns system, especially after the holiday season, according to a Wall Street Journal report. 

More than $100 billion worth of goods was returned fraudulently in the US last year, which represented  13.7% of the returned goods retailers received — twice the level of fake returns in 2020, according to the National Retail Federation

This year, the NRF is expecting fraudulent returns to reach 17% of all returned items. 

Some people are “sending back a box of bricks instead of a television set” or returning a lower-priced item and slapping a higher priced tag on it, Gartner analyst Tom Enright told the Journal.

The brazen scammers are betting they can get a refund for mailing back a package as soon as the return shipping label is scanned by a delivery service – and before the retailer can confirm the correct item is inside the box, industry experts told the publication.

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Fraudsters are counting on retailers to hand out refunds before they confirm that the returned item is not eligible. Getty Images/iStockphoto

Returned items are typically shipped to a warehouse, where the package may not be opened for several days.

Others are shipping counterfeit goods back to luxury retailers, hoping that they’ll get a refund before the merchandise is tagged as fake. 

This type of fraud “is definitely becoming more and more of a concern to retailers,” Amena Ali, chief executive of Optoro, a return service provider, told The Journal.

Part of the problem is that during the peak holiday season retailers rely on temporary staff, who may not be thoroughly trained to detect fraud, according to the report.

Fraudulent returns are increasing and retailers have begun to charge a fee for online returns to help cut down on the trend. Getty Images

Some of the returned goods were items that were stolen from other stores, a thorny problem for big chains like Target and Dick’s that have called out organized retail theft as one of the biggest challenges they face.

Another common return fraud is called “wardrobing,” which involves sending a product back after it’s been used, according to the trade group. 

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Retailers have attempted to crack down on returns by charging fees, but that doesn’t serve as much of a deterrent against the newfangled scams.

Retailers have received boxes filled with bricks instead of merchandise, experts say. Getty Images

Instead, the retailers are pushing more shoppers to bring their returns to the stores.

In-store returns seem to lead to “much, much, much lower fraud” than mail-in returns, Thomas Borders, a manager for for returns-service provider Inmar Intelligence, told the Journal. 

Another returns-service provider, Pollen Returns, inspects merchandise that customers have left on their doorstep to send back — making it harder to pass off used goods as new for a refund, said Christian Piller, the company’s chief commercial officer,. 

If the package was supposed to contain a new pair of loafers “and you put out your old New Balance shoes that you use to mow the lawn for five years … you can’t conceal this inside of a box like you could for the traditional returns process,” he told the Journal.

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