Return Frauds: Types, Impact, and How to Protect Your Business

Key Takeaways

• Data from the National Retail Federation shows 1 in 11 returns is fraudulent.
• The most common schemes include wardrobing, receipt fraud, empty box scams, price switching, and returning stolen merchandise.
• The strongest defenses combine a clear return policy, verification procedures, fraud-detection technology, and employee training.

Have you ever wondered if the “damaged item” return request you processed was real?

Return frauds are far more common than you might suspect. For every $100 in returned merchandise, you lose $13.70 to fraudulent activities. If you get $250,000 in refunds every year, around $34,250 could be fraudulent.

In this article, we’ll break down the types of return frauds, show you how they impact your business, and give you simple tips to prevent them.

The Negative Impact of Return Fraud on Businesses

Nearly 9 out of 10 businesses report losing up to 9% of their total revenue to fraud. On a $120,000 annual revenue, that’s $10,800 gone.

The operational toll is just as real. What once took 5–10 minutes to process can balloon to 20–30 minutes per return when teams have to investigate suspicious activity and re-explain policies repeatedly. That’s hours of productivity lost every day.

Beyond the financials, fraud quietly erodes trust on both sides. Stricter return policies can end up penalizing honest customers, who start to feel like suspects. Meanwhile, your team grows suspicious of every return request, which affects morale and customer service quality.

Understanding Common Types of Return Frauds

Fraud is a poison to your business. If you’re not aware of it, you might become a victim of schemes that steal your profits for personal financial gain.

Here are the most common return frauds to watch out for:

• Wardrobing: Customers buy a product, use it for a short time, and then return it for a full refund. In a 2024 study, 69% of shoppers admitted to doing this fraudulent act at least once.
• Receipt Fraud: The scammer creates a fake receipt or edits a real one to return items they never bought in the first place.
• Empty Box Scam: The scammer creates a fake receipt or edits a real one to return items they never purchased.
• Price Switching and Price Arbitrage Schemes: Fraudsters swap price tags or barcodes on expensive products with those of cheaper items, pay the lower price, and then return the item using the original higher-priced tag to receive the full retail price.
• Returning Stolen Merchandise: Scammers steal products through shoplifting and then return those stolen goods to your store for cash refunds without any receipt. According to the National Retail Federation (NRF), 44% of retailers have experienced this type of fraud.
• Identity Theft Used in Fraudulent Returns: Scammers use a stolen credit card to buy products from your store. Once the real cardholder sees the unauthorized transaction, they’ll file a dispute.
• Cross-Retailer Return Fraud: Customers buy cheaper products from competitors and return them to your store, claiming they bought the items from you.
• Bracketing: Some customers buy multiple sizes or colors intending to return most items. For example, a customer might order shoes in sizes 8, 9, and 10, keep the pair that fits, and return the rest under false pretenses.
• Bricking: Fraudsters remove valuable components from a working electronic device and return it as “defective.” For example, a customer buys a laptop, strips out the RAM and hard drive, and claims it arrived broken.
• Package redirection: Scammers reroute return shipments to fake addresses, making it appear the package was lost during return shipping.

5 Strategies for Return Fraud Prevention

Below are simple but effective steps you can take, to prevent return fraud from happening.

1. Developing and Enforcing a Strong Return Policy

Your return policy is like the front door to your house. It needs to welcome honest customers while keeping troublemakers out.

The best way is to find the sweet spot between being customer-friendly and protecting yourself from fraud. And how can you do that? Set clear (but reasonable) time limits, require receipts for high-value items, and specify which conditions void returns.

Costco is a good example of what this looks like in practice.

For their return policy, most items can come back anytime, with no receipt required. But Costco tightens the rules exactly where fraud risk is highest: electronics like TVs, computers, and smartphones get a firm 90-day window, since fast depreciation makes open-ended returns on tech an easy target for abuse. 

The takeaway: stay generous where it builds trust, and add narrower limits on the categories most exposed to fraud.

2. Leveraging Technology for Effective Fraud Prevention

Technology can be your best friend when it comes to catching fraud early. Instead of manually checking every return, you can use tools that analyze your data and flag weird patterns automatically.

CWILL Returns & Exchanges offers block settings that let you exclude certain cases from being eligible for returns. You can set up rules to automatically block suspicious patterns (before they become a problem).

3. Implementing Verification Procedures

Setting up verification steps can stop fraudulent returns before they hit your sales. Here’s what works:

• Verify original purchases: You can do this by matching customer details with order records. Ask for order numbers, email addresses, or phone numbers used during checkout.
• Require ID for high-value returns: Match billing addresses with customer information to prevent stolen credit card fraud.
• Be careful of employee fraud: Do you know that return fraud can also happen from inside your business? And it happens even in big retail stores! Macy’s is currently retrieving over $600,000 in executive bonuses (wow) after discovering an employee hid $154 million in delivery expenses.

4. Monitoring and Analyzing Return Patterns

Tracking your return rates helps you notice weird behaviors that could signal fraud before it gets worse.

One of our clients noticed their return rates jumped 40% in two weeks. When we dug deeper, we found five customers had returned identical “defective” electronics using different names but the same shipping address. That’s when we knew something was wrong.

Tools like CWILL Returns & Exchanges can help you catch these behaviors easily. Its advanced analytics track how customers return items, block return requests from some products, and give you detailed reports on return trends.

5. Training Employees to Identify Suspicious Returns

Your frontline staff are your best defense against return fraud (they see everything first). But do they know what red flags to watch for?

Train your employees to detect suspicious behavior, like customers who seem nervous about providing ID or returns without original packaging. Also, teach them to watch for multiple returns from the same person.

PRO TIP: Create a simple checklist your team can reference during busy periods.

Conclusion: Protecting Your Business from Return Frauds

Return frauds come in many forms. Wardrobing, receipt fraud, identity theft schemes, and cross-retailer scams can all hurt your profits and make your operations more difficult (not to mention the stress they cause).

Fraud prevention is something you need to do if you want to protect your hard-earned revenue. So, create a better policy, add verification steps, and use technology like return management tools to get started.

Ready to take more control of your return process? CWILL Returns & Exchanges helps you prevent fraud and reduce return losses by up to 40% while keeping customers happy.

FAQs