On Santa’s Naughty List: The 6 Forms of Fraudulent Holiday Returns
The holiday season is a profitable time for retailers, with plenty of well-intentioned consumers scouring shelves in-store, or scrolling through product pages online, to find the perfect gifts for their loved ones. Returns are to be expected: A recent report found that 20 percent of all returns take place during the holidays.
While the majority of these returns are normal – incorrect clothing sizes or online purchases not matching product descriptions, for example – there’s also a good portion of fraudulent returns happening around this time of the year as well. In 2018, it was estimated that 9 percent of holiday returns were fraudulent, and they cost retailers $6.5 billion.
An increased amount of purchases, foot traffic, and seasonal workers can cause return fraud to slip through the cracks during the holidays. Employees may ignore fraud-preventing practices in order to keep lines moving or maintain customer satisfaction, and recognizing repeat offenders can be nearly impossible to do when the high volume of consumers, purchases, and returns all become a blur.
When it comes to the holiday season, preparation is key – not only in the typical ways you would think of for your store, such as training seasonal workers or ensuring proper inventory, but for return fraud as well. Familiarize yourself with the most common types of return fraud below to protect your stores against excessive loss during this time of year.
#1: Returning Stolen Merchandise
When you combine heavier traffic than normal in stores with bad actors, it can be the perfect opportunity for holiday shoplifting. Many sell online or through a fence, but fraudsters have learned that returning stolen merchandise can bring in even bigger bucks. When polled, retailers said that 77.3 percent of their return fraud was in the form of stolen merchandise.
There are two common ways that bad actors pull this off: They may take an item off the shelf and make a non-receipted return, saying that it was a gift from someone who did not give them a receipt. Alternatively, they may make an actual purchase, drop the item off in their car, go back inside the store with their receipt, and then steal the same item from the shelf and say that they changed their mind.
The holidays provide plenty of excuses for this behavior. They could say that they just found out that the person they were shopping for already had that item, or that they realized the person may not like the gift. They could also blame spending a full day of shopping as the reason that they lost their receipt in the first place. These excuses are plausible during the season, which can cause store employees and managers to process the returns without hesitation.
In 2018, it was estimated that 9 percent of holiday returns were fraudulent, and they cost retailers $6.5 billion.
#2: False or Stolen Receipts
Many retailers are becoming more stringent in their non-receipted return policies, especially since organized retail criminals have found success in selling the gift cards received during these transactions online, often giving them back 85-90% of their “investment.” To avoid this, fraudsters have had to find new ways of obtaining receipts, either by stealing them, or by printing them off from the dark web.
Stealing a receipt during the holidays can be easier than one may think. Increased traffic means more consumers may be throwing bags with receipts still in them in trash bins nearby or accidentally dropping them on the floor. It only takes a quick walk around the checkout area of the store, and the area immediately outside, to spot these receipts.
Once a fraudster has his hand on a stolen receipt, he can perform what is called “shoplisting.” In this form of return fraud, the receipt is used as a shoplifting list. The items are then returned with the genuine receipt.
Finding stolen receipts to use for shoplisting may be hit or miss for the fraudster since consumers purchasing high-priced holiday items, such as watches or electronics, usually guard their receipts closely. Those looking to specifically target these types of expensive items may turn to the dark web to print out fake store receipts. They may even choose to print off the fake receipts using the same paper stock as the retailer’s.
The holidays bring plenty of opportunities for individuals to dress up, whether it’s for parties, New Year’s Eve celebrations, or getting professional family photos taken. Due to this, the abusive practice of purchasing clothes with the intent to wear and return them, also known as wardrobing, often spikes during this time of year.
The pressure of social media, along with hesitancy to be caught wearing the same outfit twice, has made this form of return fraud an unfortunate trend among otherwise law-abiding consumers. Throughout the year, 31.8 percent of retailers said that they experienced return fraud in the form of wardrobing. During the holidays specifically, a quarter of shoppers say they purchase items with the intent of using them and returning them later. Many of these consumers feel justified because they are living within the retailer’s published return policy.
Renting and wardrobing are not exclusive to apparel, either: Retailers who sell other expensive durable goods, such as TVs, cameras, home improvement tools, and jewelry are at risk, too. Sophisticated criminals may prefer renting or wardrobing since it keeps their credit card balances low and can mask other fraudulent behavior. No matter what the item is, one thing is certain: This type of fraudulent behavior can hit a retailer hard during the holiday season, especially in the many instances where only half of what’s returned can be resold at full price.
#4: Cross-Retailer Returns
Even before November begins, many retailers start promoting upcoming holiday sales. Whether it’s in emails, online advertisements, or TV ads, a fraudster who does his research can quickly discover where to buy expensive items at the lowest price. Then, he can take that item and make an unreceipted return to a store where the item is selling at a higher price. This type of return fraud, known as a cross-retailer return, can ramp up during the holiday season when fraudsters take advantage of busy stores and numerous price fluctuations.
Returns of high-ticket items shouldn’t be the only things retailers look out for in these types of scenarios – items such as batteries, for example, are typically on sale a lot during the holidays, and packaging is the same from store to store, making this item not only an easy target but also a profitable one if several packages are purchased at a time.
Throughout the year, 31.8 percent of retailers said that they experienced return fraud in the form of wardrobing. During the holidays specifically, a quarter of shoppers say they purchase items with the intent of using them and returning them later.
#5: Price Switching and Price Arbitrage
When price switching comes to mind, many may think of ill-intentioned consumers switching UPC stickers in order to purchase a less expensive equivalent of an item. A UPC from a roll of gift wrap may be placed on wallpaper rolls, for example, or clearance stickers may be moved to items that weren’t meant to be marked down. However, price switching can go the other way, too, and become a form of return fraud commonly found during the holidays.
To illustrate how this situation may come about, consider the following: A fraudster purchases or steals a basic model Bluetooth speaker (a common holiday gift); he also takes the UPC sticker off a higher-end model and sticks it on his arm. In the parking lot, he takes the expensive price sticker and places it over the legitimate one and heads to another store to make an unreceipted return.
Price arbitrage is another form of holiday return fraud that, similar to price switching, involves returning a cheaper item as an expensive one. With this type of scenario, a fraudster purchases differently priced but similar-looking merchandise and returns the cheaper item as the expensive one. Associates should especially be aware of popular holiday gift items, such as ear buds, that may look similar but vary greatly in price. Since receipts are present in these types of fraudulent returns, it may not raise any flags
#6: Employee Assisted Return Fraud
Retailers hire thousands of temporary workers to keep up with demand during the holidays. According to the NRF, it’s predicted that between 530,000 and 590,000 temporary workers will be hired for the 2019 season alone.
When taking a few things into consideration about these employees, including the potential lack of background checks, and little to no loyalty, it’s not hard to assume that a percentage of these seasonal workers may be there for the wrong reasons. They may use periods of high traffic as an opportunity to get away with processing fraudulent refunds for themselves, or family and friends, or making fraudulent returns using discarded receipts as happened at this major department store.
Some employees will also act as facilitators for further crimes, including providing receipt paper stock, sweethearting items for an accomplice to return, and even processing that return transaction themselves. Regardless of which fraudulent acts an employee does, one thing is certain: They can cause significant damage in a short period of time, simply because they are working in the store every week.