Fraud related to returns of retail goods has grown rampant in recent years, stealing retailers’ hard-earned profits, damaging brands’ reputations, and burdening honest consumers with higher prices.

To put the issue into perspective, return fraud in 2015 cost retailers $10.9 billion. It nearly tripled to $27 billion in 2019, then jumped by 361% to $78.4 billion in 2021. And last year, it amounted to a record-breaking $101 billion.

This growing trend is eating away an average of 3.7% of retailer revenues. From an ill-intentioned shopper to more sophisticated organized retail crime, fraudsters are capitalizing on omnichannel vulnerabilities and flexible return policies. 

Since the onset of the COVID-19 pandemic, the retail sector, and the economy at large, have been challenged by a myriad of issues. The ripple effects disrupted traditional brick-and-mortar commerce, paving the way for new online shopping (and fraud) opportunities.

The pandemic initiated the online sales boom that inadvertently spurred the rise of retail returns, which reached $743 billion of merchandise in 2023, or 17.6% of total online purchases. The surge opened the floodgates to a multitude of new avenues and channels ripe for exploitation. The reality we face now is that of a convoluted network of fraudulent activities, where flexible return policies are manipulated to the point of threatening retail integrity.

While retailers grapple with balancing a positive customer experience and post-purchase journey with stricter returns policies to combat organized retail crime, criminals are organizing refund fraud schemes, recruiting online shoppers to file false return claims, and are openly swapping return scamming tips on public forums like Reddit, Telegram and TikTok.

Returns exploitation ranges from seemingly innocent consumers who regularly engage in “wardrobing” and “bracketing” to highly sophisticated organized retail crime groups in coordinated smash-and-grab shoplifting, as well as stealing from retailers’ warehouses and trucks, then reselling stolen items on the black market.  

Following are five of the most prevalent fraud tactics being used today. 

Wardrobing, aka “renting,” is when a shopper buys an item with the intention of returning the item after use. Popular examples include buying an expensive outfit to wear for one occasion such as a party or photoshoot and then returning it, returning a book after reading it; or purchasing a big-screen TV for a Super Bowl watch party and then returning it after the game.  

Wardrobing is typically conducted by shoppers taking advantage of flexible return policies. Its impact costs the retail industry $12.6 billion in lost sales and is a major contributor to the overall returns abuse problem. While consumers may think this is a innocent and victimless crime, the used items that are returned can rarely be resold at full price. Most have to be thrown away, contributing to the 4.3 billion tons of returns that end up in landfills.

Bracketing is where customers order multiple items with the intention of keeping only one. This has become far too common a practice in online apparel purchasing, as consumers try on various sizes, then return the items that don’t fit.

The issue with bracketing arises from customers exploiting lenient return policies. Even when items are returned unused, retailers still incur costs to reintegrate them into inventory. Customers believe this is normal online shopping behavior because of free returns policies and convenient ship-back methods, but has a detrimental effect on retailer revenues and the environment. With nearly two-thirds of shoppers admitting to bracketing as a standard part of their online shopping experience, the practice not only costs retailers a decent chunk of their bottom line, but is responsible for 11.3 million tons of apparel discarded annually, which equates to 10% of total global CO₂ output.  

Buy online, pick up in-store. Having gained popularity during the days of social distancing, BOPIS offers customers the ability to place an order online, then schedule a curb or in-store pickup at their convenience.

During the pandemic, BOPIS sales grew by more than 100%, accounting for 10% of total e-commerce sales Fraudulent activities in BOPIS transactions were notably higher at a rate of 7%, in contrast to 4.6% observed in other channels. BOPIS disrupts the conventional e-commerce model, creating unforeseen loopholes in the omnichannel.  

Criminals exploit BOPIS by a few different methods. One is using stolen payment card data for online transactions, then picking up the purchased goods in-store. Most of the time, the merchant doesn’t request to see any form of identification or the physical debit or credit card at pickup. Criminals especially take advantage of busy shopping times such as the holiday season, when store workers are at full capacity and take even less time to verify a customer purchase.  

Another method is last-minute cancellations, which criminals initiate right as they are walking into the store, or pulling up to the curb to collect their order. There’s generally a short lag in the retailer’s system between when the cancellation is requested by the customer and the time it takes to be received by the merchant. It’s during this time that the fraudster physically picks up the goods. Some use stolen credit card information, making it difficult to trace back the fraud. 

Fake returns. Imagine opening a returned iPhone box only to find it stuffed with potatoes, or a television box that, upon inspection, contains nothing but rocks. It's not just electronics; even shoe boxes are being used as receptacles for garbage instead of the expected merchandise. In a particularly bold move, a fraudster might return a five-year-old laptop instead of the latest model they recently purchased. 

Returning stolen merchandise. In this fraud tactic, a criminal will intentionally steal a high-value item, then return it for a full refund with either a forged receipt, or no receipt at all, pretending it was a gift. This tactic effectively strikes the retailer twice: first, through the diminished resale value of returned items, and second, being duped into issuing a full refund.

Just as in the game of chess, retailers must stay many steps ahead of fraudsters, in line with the changing nature of retail theft and returns fraud. As criminals evolve, so must the strategies to combat them.

Vigilance and innovation remain a retailer’s strongest allies. By harnessing the power of advanced returns management software, enforcing robust return policies and empowering well-trained employees, retailers can fortify their defenses against this multi-billion-dollar scourge. As retailers continue to adapt and refine their strategies, they not only protect their bottom line, but also uphold the integrity of the market and preserve consumer trust.

Sender Shamiss is chief executive officer and co-Founder of goTRG.