3 ways to deter return fraud this holiday season

The National Retail Foundation’s 2014 Return Fraud Survey reports that retailers will see an estimated $3.8 billion loss due to return fraud during this holiday season, which is higher than last year’s $3.4 billion. Given that retail revenues are getting higher year over year, it’s unsurprising that return fraud is also increasing.

Return fraud can be using then returning merchandise; a common example is when high-end clothing items get worn once for a special occasion then returned. This style of return fraud is called “wardrobing” and is popular amongst clothing and electronics. Falsifying receipts, using gift cards to make a purchase then returning for cash, or asking for a gift receipt for final sale items in order to return for store credit are all examples of return fraud that take up substantial time and money to resolve.

With eCommerce customers, shoppers might be even more daring in attempting returns. The feeling of online anonymity may often cause customers to look for more loopholes. In such a cutthroat industry, fighting return fraud while retaining customer loyalty and trust can be a challenge. How do you walk the fine line in preventing return fraud without alienating customers?

1. Analyze customer purchase history

Look for customers who have high history of purchases and returns throughout the year and after peak holidays. Some retailers are blacklisting these customers from being able to make returns, while others accept the risk believing that alienating any customer is bad for business. REI, Nordstrom, and L.L. Bean famously have generous return policies, but this might not make the most financial sense for other retailers. Use customer data to identify chronic returners from indecisive buyers; limit incentives or high percentage-off coupons to discourage return fraud.

2. Get smart with return policies

Create return policies that deter return fraud. Ask the customer to provide the item identification number and order number. Asking the customer to provide more information about their return or about the quality of your product or service can also make a difference in preventing return fraud. Instill policies such as store credit for some items, no free shipping for items that customers just didn’t want, or a restocking fee for certain items. However, make sure to keep the return process as painless as possible for legitimate reasons, like for damaged products.


Amazon does a great job ensuring easy returns within acceptable parameters.

3. Win back and re-engage

As mentioned before, many retailers are reluctant to instill tougher return policies even as margins get thinner and competition gets tougher. However, returns can be a great time to engage and retain customers. After a return has been made, send a win-back email. It can be anything from suggesting other similar items or a special offer. This is a great way to win back a customer.

With a collective $3.8 billion on the line, it’s easy to panic about the potential risks. But there’s no need to sacrifice good customer experience in order to combat return fraud. In fact, developing smarter return policies can help retain better customers and create a better experience for everyone throughout the holidays.