This blog was first published in June 2023 and has been updated for accuracy on March 10, 2025.

Return fraud and abuse poses a significant challenge for retailers, impacting their profitability and operations. While customers take advantage of lenient return policies, dishonest individuals simultaneously engage in various fraudulent activities. Understanding the most common types of return fraud and implementing effective prevention strategies is crucial for retailers to safeguard their business.

What is return fraud? 8 common types of return fraud and abuse

Return fraud and abuse occurs when a customer deliberately manipulates a retailer’s return process in order to obtain a refund or an unearned benefit. Common retail returns abuse includes returning stolen merchandise, using counterfeit receipts, altering or switching price tags, claiming an item was not received, returning an empty box or a ‘brick in a box,’ or exploiting lenient return policies.

Return fraud is a major problem for retailers. The 2024 Consumer Returns in the Retail Industry Report, published by Appriss Retail and Deloitte, unveils startling retail returns statistics: Consumers returned $685 billion worth of items in 2024—13.21% of total retail sales—with $103 billion in losses tied directly to return and claims fraud in 2024. Retailers must confront the growing threat of return and claims fraud and abuse now to promote growth in 2025.

The days of relying on one-size-fits-all return policies are in the past.

1. Wardrobing (Using and Returning)

Wardrobing fraud, also known as “using and returning,” occurs when customers purchase items with the intention of using them temporarily and then returning them for a full refund. This type of return fraud or abuse is especially common in clothing, home improvement, furniture, and electronics industries, where products can be used briefly, whether it is for a social media post, home repair, or throwing the perfect Super Bowl party, and returned without showing significant signs of wear. In 2024, a staggering 15.14% of all consumer returns were classified as fraudulent, with 60% of retail executives identifying wardrobing as a significant type of return fraud they encounter.

2. Price switching and price arbitrage

Fraudsters manipulate pricing by swapping universal product code (UPC) stickers or packaging to deceive retailers. In price switching, they place a lower-priced label on a higher-priced item before purchase, then return it for a refund at the inflated price. Price arbitrage follows a similar tactic, where fraudsters buy a cheaper item that looks like a more expensive version and return it as the higher-priced product.

3. Returning stolen merchandise

Bad actors and organized retail crime groups steal items from a store and attempt to return them for cash or store credit, often without a receipt. Some may claim the item was a gift, while others use their original purchase receipt to steal and return an identical item for a duplicate refund. In some cases, fraudsters will forge receipts or use false identification to deceive retailers, leading to additional financial losses.

4. Counterfeit returns

Retail return abusers exploit return policies by replacing genuine products with counterfeit or fake items and returning them for a full refund. This often happens with high-value goods such as designer clothing, electronics, and luxury accessories, where the counterfeit closely resembles the authentic product. Retailers may unknowingly accept the fake item and issue a refund, leading to financial losses and potential reputational damage. Without strong fraud detection measures, counterfeit returns can be difficult to spot, making them a significant risk for businesses. 

5. Empty box returns or a ‘brick in a box’ 

Shoppers may exploit return policies by returning items they have used, damaged, or falsely claim arrived in poor condition. This type of return fraud is especially common with clothing, electronics, appliances, and home goods, where customers may extensively use a product before seeking a full refund or replacement. In more deceptive cases, fraudsters may return an empty box or replace the original item with a worthless substitute, such as a brick or other filler, to manipulate the return process. Without strict verification measures, retailers face financial losses and increased costs from restocking, fraud, and unsellable merchandise. 

6. Gift card fraud

Gift card fraud involves unauthorized use, theft, or manipulation of gift cards to make purchases, often leading to chargebacks and revenue loss for retailers. Fraudsters steal physical cards, buy gift cards with stolen credit cards, or use bots to hack digital balances. Organized retail crime (ORC) rings frequently exploit these vulnerabilities, making gift cards a prime target. Recent cases, including a $100,000 scam at one soft apparel retailer affecting over 100 victims, highlights the growing threat and urgent need for stronger fraud prevention measures. Learn more about how retailers can cut back on gift card fraud. 

7. Excessive bracketing

Some shoppers engage in excessive bracketing, purchasing multiple variations of a product with the intent to return most or all of them, placing significant strain on retailers. This practice increases return processing costs, ties up inventory, and disrupts operations. While most customers use return policies in good faith, others exploit lenient policies, effectively treating retailers as temporary rental services. 

8. Claims fraud

Claims fraud, also known as refund fraud, occurs when a customer falsely reports that an item never arrived, despite having received it. Common examples include Did Not Arrive (DNA) and Item Not Received (INR) claims. In some cases, fraudsters exploit lost order claims to receive a reshipped item, then return the duplicate in-store without a receipt to convert it into store credit. These deceptive practices lead to significant financial losses for retailers, similar to chargebacks, by forcing them to issue unnecessary refunds or replacements. The only way to effectively combat this type of fraud is through a comprehensive, multi-channel approach, ensuring retailers can detect and prevent abuse across all touchpoints. Explore how return and claims fraud in 2024 is shaping retail strategies for 2025.

Is return fraud illegal? 

Yes, return fraud is a criminal offense. It involves deception and dishonesty, leading to financial losses for retailers, and can be prosecuted as theft, fraud, or larceny, depending on the jurisdiction. 

How to prevent return fraud 

• Implement dynamic return strategies: The era of one-size-fits-all return policies is over. To effectively combat return fraud and abuse, retailers must understand the unique needs of each customer at the time of return and offer tailored incentives that address their specific situations. This approach helps reduce costs and enhances the shopping experience, fostering long-term customer loyalty.  
• Require identification for non-receipted returns: Requiring identification for returns without a receipt helps retailers track transaction history, detect patterns of abuse, and discourage repeat offenders. This practice is particularly effective for managing non-receipted returns while still allowing legitimate customers to make returns within store policy. 
• Utilize technology and data analytics: Detecting fraud and abuse as fraudsters move from channel to channel can be difficult to track and can cost retailers millions. Retailers can leverage advanced technologies and data analytics to identify suspicious return patterns and behaviors, track serial returners, and detect anomalies that may indicate fraudulent activities. Solutions such as Appriss® Engage harness the power of data science and AI to help retailers protect omnichannel profits, improve their bottom line, and achieve a better customer experience.  
• Train staff on fraud detection: Educating employees about the various types of return fraud and providing them with tools and techniques to identify suspicious transactions can be instrumental in preventing fraudulent returns. Appriss® Secure Coach identifies associates in need of supportive training and provides the store or call center manager with the metrics and tools to track training sessions and results.

Retail return fraud can sometimes escalate into workplace violence, particularly when associates confront fraudulent customers or deny returns.

By training staff to recognize and manage potential fraud situations calmly and effectively, retailers can minimize the risk of conflict and ensure a safer workplace for employees. Empowered and informed employees are better equipped to handle difficult situations, which can ultimately lead to a more secure and positive retail environment.  

• Partner with leading industry specialists: Partnering with specialized organizations like Appriss Retail can provide both brick and mortar and ecommerce retailers with a strong advantage in reducing return fraud. In 2025, Appriss Retail partnered with Optoro to enhance cross-channel protection against return fraud, combining data-driven fraud protection services with Optoro’s returns management system for a seamless retail experience. By accessing advanced technologies, industry expertise, and valuable data intelligence, retailers can significantly enhance their fraud detection and prevention efforts, making their operations more secure and efficient. Reach out today to start a conversation. 

Addressing the challenge of retail return fraud and abuse 

Retail return fraud and abuse remains a pressing issue that significantly affects profitability and overall operational efficiency.

To effectively address this challenge, retailers must recognize the various types of return fraud or abuse and implement proactive prevention strategies tailored to their unique business needs. By establishing clear return policies, providing comprehensive employee training, leveraging advanced technologies, and collaborating with specialized external resources, retailers can protect their financial interests while ensuring a secure shopping experience for customers.

It’s important to note that return fraud detection is not a one-time effort, and it requires ongoing monitoring, analysis, and adaptation to counter evolving fraudulent tactics. By building a strong foundation and maintaining vigilance, retailers can effectively combat return fraud and enhance operational resilience.

Reach out to connect with a solutions expert who can connect the dots in your data, answer your questions, and ensure your customers receive the experience they deserve.