The Types and Signs of Retail Return Fraud

December 26, 2018

Once the holiday shopping is finally over and gifts have been exchanged, there are always presents that make their way back to where they came from. Retailers are no stranger to an influx of returns immediately after the holidays, but it’s important to make sure that these returns are being done correctly to avoid potential damage to your business. Retail return fraud can pose a challenge, so it’s important to know the signs that it could be happening to you.

What is return fraud?

As the name suggests, return fraud is a type of fraudulent activity that happens after a purchase has already been made. Instead of the fraudulent activity happening during the purchase process, such as through using a stolen card, this kind of fraud happens during the return process, though tactics we will explain below. Retail return fraud can result in significant losses for businesses, whether through revenue or inventory, if they’re not careful and aware of the signs.

What are the tactics?

The first step to preventing return fraud is to understand the different types of return fraud that exist. Once you know the forms of retail return fraud that exist, you’ll be better prepared to spot the signs of it occurring at your store.

Returning Shoplifted Merchandise

In this scenario, an individual shoplifts a piece of merchandise, and then attempts to return it to the store for full purchase price. When this happens, the shoplifter will not have a receipt for the item, and your record keeping system won’t have the item on file as being purchased. This can typically be prevented by having a return policy that requires valid receipts.

Receipt fraud

In this scenario, an individual who shoplifts a piece of merchandise attempts to return it with an old, stolen or fabricated receipt. There are a few different ways to prevent this depending on the way your POS solution prints receipts; if a receipt is printed with the SKU, make sure to confirm the receipt matches the item that is being returned. If there is no SKU on the receipt, train your employees on  what a valid receipt looks like, and include a set number of days in your return policy.

Price Tag Switching

In this scenario, an individual replaces the price tag on an expensive item with a lower cost price tag, and then purchases the item at that lower cost. When they go to return the item, they remove the lower cost price tag and asks for the full item value back. This type of fraud can be prevented in a few ways, including having price tags that don’t include stickers or change-able parts, and making sure that an item is scanned in correctly.


In this scenario, an individual correctly purchases an item, uses it one or more times, and then passes it off as unused in order to return for a full refund. Wardobing can happen in many industries, but it is especially prevalent for clothing retailers, where customers buy a piece of clothing for a particular event and then return it the next day. To prevent this, make sure your staff closely examine every item that comes back for a return, and make sure your return policy is strict and well defined.

It’s important to make sure that you are aware of the warning signs of retail fraud, and take a preventative approach to avoid unnecessary losses. To learn more about fraud, check out our articles The Top Five Reasons for Chargebacks and Preventing Ecommerce Fraud [Webinar].


The information in this article is provided solely for informational purposes and is not intended to be legal, business or other professional advice or an endorsement of any of the websites or services listed. 

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