How to Prevent Return Fraud in Your Retail Store

prevent return fraud

Retail returns are a trouble spot for retailers at any time of year, but at the holidays, the problem is especially significant. This year, the NRF expects holiday return fraud will cost U.S. retailers $2.2 billion, according to NRF’s Return Fraud Survey.

Retail return fraud is on the rise due to many factors, including the increasing popularity of gift cards, new payment methods and technological innovations that make it easier to falsify or duplicate receipts. Some of the most common types of fraud are:

  • Wardrobing: The tactic, often used with high-end clothing or electronics, means a customer buys something, uses it once and then returns it (like the teen who wears a prom dress and returns it the next day, or the sports fan who returns the big-screen TV he bought from you the day after the Super Bowl).
  • Employee Fraud: Dishonest employees may be in cahoots with friends to falsify returns.
  • Gift Card Returns: Some fraudsters buy products with gift cards, then return the products and ask for cash.
  • Gift Receipt Returns: Some customers will ask for gift receipts for “final sale” products so they can return them for store credit.
  • Falsified Receipts: Making copies of receipts and changing dates or prices.
  • Stolen Merchandise: Thieves take advantage of retailers’ liberal return polices to return items they’ve stolen and get cash. A whopping 92 percent of retailers in the NRF survey say they’ve experienced this.

I wrote last year about how to develop a return policy for your store, but what additional steps can you take to prevent return fraud?

  • If you sell expensive products, such as consumer electronics or home appliances, you may want to charge a restocking fee for any returns. This will help dissuade thieves.
  • If you have an e-commerce site in addition to retail store, encourage customers to return products in-store. Emphasize that this is the quickest way to get their money back. Sometimes, thieves return purchases by mail and enclose similar used items instead — a fraud which sometimes isn’t noticed until the return has been processed. In-store returns can help prevent this.

One of the best tools at your disposal is a good point-of-sale system. Today’s POS systems offer a wide variety of features to prevent return fraud. Tap into the features of your system, or look for a system that offers these features:

  • Track returns on a daily basis so you can spot any unusual trends. Look for a POS system that shows you overall statistics for returns, as well as letting you drill down into details. Is one type of product getting returned a lot? Are certain customers making a lot of returns? Is there one employee who consistently gets most of the returns? All of these can be red flags indicating fraud.
  • If you find that certain customers do a lot of returns, you can use the notes field of your POS system to input directions or information for employees. For example, the notes could warn cashiers of additional steps to take when dealing with these customers, or show that the person has a history of “warehousing” merchandise.
  • Use digital receipts. When receipts are digitized, your employees can access them using the POS system even if the returning customer doesn’t have a receipt on hand. This way, they can verify the purchase was actually made and what form of payment was used. Even if a customer presents a paper receipt, crosschecking it against the digital receipt will identify fraud such as changing dates, prices or products.
  • Use check verification. If you have customers who still write checks, you also need to worry about check fraud. A POS system that includes check verification allows you to compare checks to a database of bad check writers, and even to access the customer’s checking account to see if he or she has enough funds available for the check.

You can never eliminate return fraud entirely, but by taking the steps above, you’ll go a long way to preventing it.

Package Delivery Photo via Shutterstock

More in: 1 Comment ▼

Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.

One Reaction
  1. Running an ecommerce site can be difficult this holiday season. There will always be tons of fraud transactions. The key is to learn how to discern them so that you can prevent chargebacks from happening.