Losses from return fraud and abuse exceed $100 billion
A new study reveals that fraudulent and abusive returns activity poses a serious threat to retail profitability.
Total returns for the retail industry amounted to $685 billion worth of merchandise in 2024, representing 13.21% of total retail sales ($5.19 trillion), according to the annual "2024 Consumer Returns in the Retail Industry" report from Appriss Retail, in collaboration with Deloitte.
The report revealed that fraudulent returns and claims resulted in a $103 billion loss for retailers in 2024, with 15.14% (up from 13.7%) of all returns deemed fraudulent (meaning a customer attempted to return an item to a retailer for a refund, knowing the item did not qualify for a refund according to the store's policy.)
In other findings from the study, the total amount of dollars lost to returns abuse and fraud was $103 billion, up from $101 billion in 2023.
[READ MORE: NRF: 2024 retail returns to total $890 billion]
Frequent types of return fraud and abuse
Retail executives were surveyed about the most common types of return fraud and abuse they encountered in 2024. Wardrobing (used merchandise returned) topped the list at 60%. It was followed by:
- Fraudulent or stolen tender (gift card fraud:) 55%;
- Return of shoplifted merchandise: 48%;
- Counterfeit receipts/e-receipts: 48%;
- Bracketing (buying multiple items, returning some): 47%; and
- Employee return fraud or collusion: 39%.
Appriss Retail estimates claims and appeasement fraud and abuse are estimated to be worth $21 billion. The return rate for in-store purchases was 8.72%, while online returns reached 24.52%. Combined, the overall return rate as tracked by Appriss Retail stands at 13.21%.
In addition, 84% of surveyed retail executives report their companies have changed return policies in the past year to combat fraud and 83% said they have changed return policies in the past year to decrease returns.
However, 55% of consumers surveyed by Appriss Retail have decided not to buy from retailers due to restrictive return policies, while 31% stopped shopping at certain retailers due to negative return experiences.
“It’s clear why retailers want to limit bad actors that exhibit fraudulent and abusive returns behavior, but the reality is that they are finding stricter returns policies are not reducing the returns fraud they face,” said Michael Osborne, CEO, Appriss Retail. “Our annual research highlights the serious problem of returns fraud, and why an AI-powered, data-driven approach to loss prevention can reduce fraud and keep consumers loyal.”
When identifying fraudulent online returns, retailers surveyed stipulate that the most common indicator is empty boxes at 31%.
Top fraud prevention efforts and tools
Surveyed retail executives have deployed the following efforts and tools to prevent returns fraud:
- Requiring receipts/proof of purchase: 67%;
- Limiting return windows to 30 days or less: 59%; and
- Manually monitoring transaction data for fraudulent behavior:54%. Implementing real-time return technology to approve, warn, or deny a return or claim based on behavior patterns 35%.
The "2024 Consumer Returns in the Retail Industry Report" was based on data from more than 60 U.S. retailers and the U.S. Census Bureau as well as a survey of 50 retail leaders and 1,000 consumers. The report was done in collaboration with Deloitte.
