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BizReport : Ecommerce archives : January 18, 2018

The rising cost of retail returns fraud

As online shopping transactions increase, and businesses try to make the returns process attractive to consumers, so attempts at retail fraud also increase. New research puts a figure on the cost to retailers and their employees.

by Helen Leggatt

New benchmark data released by ACI Worldwide shows a "consistent, alarming uptick in fraudulent activity on key dates". While online transactions among top U.S. retailers increased by 19% during the recent holiday season, fraud increased by 22%.

Peak fraudulent days were Thanksgiving Day (1.94%, up from 1.26% in 2016), Christmas Eve (1.78%, up from 1.48%) and December 21 - the cutoff date for express shipments - (1.67%, up from 1.49%).

According to Erika Dietrich, Director of Risk Management at ACI Worldwide, "merchants must be proactive in their efforts to identify weak points across the omni-channel payment process and define the short- and long-term strategies necessary to improve security and enhance customer experience".

One channel via which fraud is increasing is returns. Recent figures from Appriss Retail puts fraudulent returns at an estimated 10.6% of all returns costing retailers around $22.8 billion each year. Their survey of retailers found that more than two-thirds (68.3%) suffered returns of stolen (shoplifted) merchandise while 65.1% encountered return fraud by employees or employees collaborating with thieves. Other retail fraud scenarios include fraudulent or stolen payments (57.1%), organized retail crime (54%) and 'renting' or 'wardrobing' (using / wearing purchases before returning them) (39.7%).

The loss of profit caused by returns fraud is prompting retailers to offset the negative business impact by raising prices and reducing costs. Last year alone, return fraud cost U.S. retailers and workers between 596,000 and 775,000 jobs and retail revenue losses are costing states a total of $1.1 billion to $1.4 billion in lost sales taxes.

"It is critical to understand how returns and return fraud reduce net sales and contribute to total loss - clear causes of retail performance issues," said Krishnan Sastry, president of Appriss Retail. "The results within this report offer the industry's best view of the subject of merchandise returns, as well as potential fraud and abuse."

Tags: ecommerce, fraud, retail, returns, trends

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