Protect your business by getting ahead of returns fraud.
Every retailer knows the routine. A customer has bought something and wants to return it, either because it’s faulty or it doesn’t meet their needs in a way that’s covered by the return policy.
To an extent, dealing with returns is just part of doing business, but evidence suggests it’s a factor that’s increasingly affecting margins, given that at least some of those returns will be fraudulent. That means that as the total value of returns increases, so does the impact of fraud.
So how big is the problem of returns fraud, what does it look like and how do you defend your business against it?
The scale of the problem
In the US alone, the total cost of returns to the retail industry was estimated at $849.9 billion in 2025, up from $743 billion in 2023 and $428 billion in 2020. Approximately 9% of those returns last year were fraudulent, with almost half of all shoppers saying it was acceptable to “bend the rules” when returning items.
In Australia, retailers face a similar story: 40% of shoppers said that they or someone they know had participated in at least one form of returns fraud or abuse in the past year, while 90% of merchants who had experienced returns fraud said that the numbers had been growing in the previous 12 months.
The dollar value that can be put on this behaviour is breathtaking, with one US study finding that in 2023 “return fraud contributed $101 billion in overall losses for retailers” and that “for every $100 in returned merchandise, retailers will lose $13.70 to return fraud.”
Types of returns fraud
Returns fraud comes in a range of guises, but some of the most typical are:
- Wardrobing, where the customer buys an item, uses it once and then returns it as if it had not been used.
- Receipt fraud, where the customer presents a stolen or altered receipt to return goods for cash.
- Bracketing, where the consumer buys multiple items, or variations of the same item, online and then, instead of returning the ones they don’t want, claims that some of the items never arrived and that they are therefore owed a partial refund.
- Empty box returns, where the shopper sends back an empty box, or fills the box with bogus items, instead of returning the original purchase.
- Charging back, where the customer orders an item online and then tells their bank that the purchase is unauthorised.
In ranking how frequently different types of fraud occurred, one Australian survey concluded that, globally, wardrobing was implicated in 38% of fraudulent returns, while empty box returns were involved in 30%.
The real-world impact
The impacts of returns fraud can be wide-ranging and devasting. The statistics above give a good measure of the upfront dollar costs to retailers, but the effects show up in other, less obvious aspects of retail operations as well.
In a recent blog we talked about how the lack of a robust returns process could impact stock accuracy as stock went missing or was miscounted. Those inventory distortions are multiplied when fraud is added into the mix, as you end up with stock that has been recorded as being returned but which in fact doesn’t exist, leading to overselling and order fulfilment issues.
One common response to returns fraud is to tighten the returns policy, but this can backfire if not done well, especially when it comes to online shopping. Eighty-two percent of consumers say that free returns are an important consideration when buying online, so making it harder for them to return items can act as an unwelcome deterrent and negatively impact customer satisfaction.
And no matter how you respond, whenever returns fraud occurs it will cost you, not only in terms of lost stock but in terms of wasted time as your store team handles shipping or processes refunds and then tries of figure out why stock numbers don’t add up.
How to avoid fraud
As with anything, avoiding returns fraud is better than trying to treat it. But when you operate in an environment where “returns anywhere” has become a basic expectation that can be easier said than done.
Giving customers the option to buy online and return instore is great from a consumer convenience perspective, but it can also provide an opening to returns fraud, especially given that online sales see a higher return rate.
While there are a number of things you can do to address the issue, from charging return fees to banning customers with excessively high return rates, the best defence is a robust returns process and a clear view of customer transactions.
Just as getting your returns process right can improve overall stock accuracy, doing things like consistently requiring evidence of damage or a valid serial number as a pre-authorisation check can be enough to deter fraud. Implementing consistent policy enforcement so a return isn’t approved instore under different rules than it would be online is also key.
You also need to think about whether your current retail management systems are strong and flexible enough to act as a deterrent or to quickly identify any fraudulent activity that does slip through. With a unified commerce solution you can easily identify the customer’s purchase and return history regardless of channel so that behaviours such as bracketing or wardrobing are discoverable across channels. Without this 360-degree view, you’re dealing with disconnected systems that are easily exploited by people who don’t care about your bottom line.
Looking for a retail management system that helps you deal with real-world problems? Get in touch or email sales@triquestra.com. We’d look to explain how the Infinity retail management platform can help you deliver the insights you seek.
Infinity unified commerce is powered by Triquestra, an Auckland-based retail software company.
