Return Fraud

Return fraud is a costly retail scam impacting e-commerce and brick-and-mortar stores. Learn how it works, common types of fraud, and common best practices to mitigate return abuse.

What is return fraud?

Return fraud is a type of retail scam where individuals exploit store return policies to gain financial or product advantages. It is a common and costly form of retail fraud that affects both brick-and-mortar and online merchants.

While legitimate returns are a standard part of retail operations, return fraud involves tactics like returning stolen goods, using counterfeit receipts, or exploiting lenient return policies. Retailers worldwide experience return abuse, which not only impacts revenue but also disrupts inventory management, increases shipping and processing costs, and strains customer service teams.

With the rise of e-commerce and omnichannel shopping, return fraud has evolved into a sophisticated and multifaceted threat. Fraudsters may operate independently or as part of organized retail crime rings, taking advantage of fragmented systems and inconsistent return policies across platforms.

What are the most common types of return fraud?

Return fraud comes in many forms. Below are some of the most frequent and damaging methods used by fraudsters:

Wardrobing

Wardrobing involves purchasing an item like clothing, electronics, or luxury goods, using it briefly, and then returning it for a full refund. It’s common in fashion and consumer electronics, where items are temporarily used for events, recordings, or testing purposes.

Receipt fraud

This tactic involves fraudulently returning goods using forged, altered, or stolen receipts. In some cases, fraudsters may find discarded receipts in stores or online and match them with stolen or underpriced items to initiate a return.

Bricking

In bricking, a fraudster purchases an electronic device, strips it of valuable parts or alters its internal components, and returns it in a non-functional or ‘bricked’ state. The external product may appear intact, making this scam hard to detect during standard return inspections.

Empty box scam

Also known as the “box switch,” this fraud occurs when someone returns an empty box instead of the actual product. In e-commerce, it’s particularly difficult to verify whether the item was returned correctly without extensive video surveillance or smart packaging solutions.

Cross-retailer returns

An item purchased from one store is returned to a different retailer that sells the same or similar item, usually without a receipt. This often exploits retailers with less stringent verification systems or overly generous return policies.

Price switching

Fraudsters switch labels on higher-priced items with lower-priced tags, purchase the items, and then return them with the original higher-priced label to claim the difference in value.

Why is return fraud a growing concern for retailers?

Return fraud has become increasingly difficult to manage due to the rapid expansion of e-commerce, flexible return policies, and the rise of omnichannel shopping experiences. Here are key reasons it’s escalating:

Retailers not only face direct losses from refunds and inventory shrinkage, but also indirect costs such as restocking, repackaging, customer service labor, and potential reputational damage.

How can retailers detect and mitigate return fraud?

Successfully mitigating return fraud requires a combination of policy enforcement, fraud analytics, and advanced technology.

Strengthen return policies

Use fraud detection technology

AI and machine learning-based fraud detection solutions can identify patterns across return transactions. For example, the Pindrop solution can detect anomalies in voice behavior across customer service calls or flag high-risk transactions in real time.

By analyzing behavior, audio signatures, and call metadata, such tools help contact centers and support agents who need to distinguish legitimate customers from return fraudsters or coordinated fraud rings.

Train employees

Retail and contact center employees should be trained to recognize red flags, including frequent return attempts, inconsistent stories, or aggressive behavior. Fraud education should be part of onboarding and ongoing development for both in-store and remote teams.

Centralize return data

Consolidating return data across online and offline channels allows retailers to build a more comprehensive view of customer behavior and identify suspicious activity sooner. Return fraud often hides in the gaps between siloed systems.