Retail return fraud is rising as key holiday deadline approaches

Deadlines loom for consumers who want to send back unwanted holiday gifts.

Many retailers extend return windows for purchases made in November and December through the end of January. But in many other parts of the return process, companies have become less lenient.

As more consumers shop online and send back more of those orders, retailers have moved to crack down on fraud. It has become their top concern in the return process, industry experts said.

“Fraud is No. 1, and it’s not even close to No. 2,” said Vijay Ramachandran, vice president of go-to-market enablement and experience at shipping and mailing firm Pitney Bowes.

Retailers expect 16.5%, or $24.5 billion worth, of holiday returns to be fraudulent this year, according to a survey by Appriss Retail and the National Retail Federation. That’s higher than an average of 13.7% estimated for all of 2023.

Processing an online return is already a costly proposition: It averages 21% of an order’s value, according to a Pitney Bowes survey of 168 retailers. Half the respondent companies paid more than 21%.

The cost of processing a return is increasing not only due to higher shipping and processing costs, but also because of rising fraud, industry experts said.

“In cases where fraud is on the rise, like this year, what we’ve seen in the data, retailers are forced to, at minimum, change their policies slightly to accommodate for that potential fraud and abuse,” according to Michael Osborne, CEO of Appriss Retail, which helps companies manage theft and fraud. “It does increase their costs and essentially erode their margin.”

Saks CEO Marc Metrick said at the NRF Big Show in mid-January that while the retailer has long received legitimate complaints from customers about missing items, fraudulent “merchandise not received” complaints to the company have more than doubled over the past several years.

That’s just one fraudulent return…