Retail Dogma

Return Fraud

What is Return Fraud?

Return fraud is the act of defrauding a retail business using its return process.

Types of Return Fraud

Return fraud happens in different ways, and here we will highlight the most common ones and how retailers can prevent them.

1. Return of Stolen Merchandise

In this example, the fraudster picks up an item from the store without paying for it, and then tries to return it at the cash register to get a cash refund or store credit.

Retailers can prevent such a type of fraud by strictly requiring receipts to issue a refund.

2. Copy Receipt Return

In this scam, the fraudster uses a copy receipt, possibly obtained through an employee working at the retail store, and tries to get a refund for an item that was stolen from the store.

Retailers can prevent such a type of fraud by training their cashiers to only accept original receipts and making sure that their POS only prints an original receipt once, and any subsequent prints for the same transaction should be labelled as “Copy Receipt”

3. Return of Promotional Items

In this fraud, the customer buys items that they bought through a bundle offer, for example, Buy One Get One Free, and then tries to return one of the items they got for free, in return for cash.

To prevent such fraud, retailers should require that any promotional items should be returned together. For example, in this case, the other item bought through the same bundle should be returned as well, if the customer wants to get the refund.

4. Bricking

Buying an item, then stripping it from its valuable components and selling those components separately, while returning the item for a full refund.

Retailers can prevent this through a clear return policy that only accepts back items in their original packaging and format.

5. Open-Box Return Fraud

Buying an item and returning it back after opening the original package, with the intent of buying it again at a lower price through the store’s open-box policy.

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Return Fraud Vs. Return Abuse

There is a difference between a fraudulent act, and other acts that abuse the return policy of a retailer, without necessarily committing fraud.

An example of this is wardrobing. This is the act of buying merchandise and wearing it for an occasion while keeping the tag intact, and then returning it for a full refund within the return policy window.

Some retailers try to prevent or minimize such an act it by not issuing cash refunds, but rather only issue store credits. However; in many countries such a policy is not legal and there is a requirement for a refund policy that refunds customers with the same mode of payment.

Another example of a return abuse is when a customer is in need of cash urgently, so they go to the store and purchase an item using a credit card, then try to ask for a cash refund. In this case, the customer wants to take the money and not pay for the interest they would have otherwise paid if they withdrew cash from the ATM using the credit card, and benefit from the interest-free window most credit cards offer on purchases.

Here, the retailer can enforce the policy of only issuing a refund in the same mode of payment the item was bought with.

Another example is cross-retailer return, where a customer buys an item cheaper from a retailer and tries to return it at another retailer that sells it at a higher price. A retailer that strictly enforces a policy of requiring an original receipt for all returns should be able to avoid this type of return abuse.

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More Resources

Thank you for reading this article on return fraud. You might also be interested in the following free resources:

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