What Is Return Fraud and How Do Retailers Stop It?
B2C and B2B commerce has only become more complicated in recent years. The rise in online purchases, supply chain challenges, and high return rates have added cost and complexity to many enterprises, across industries.
Unfortunately, these challenges have added new opportunities for fraudulent returns. And it’s not always a lone actor; organized efforts run large returns scams. According to Consumer Returns, “Many fraudulent returns are carried out by individuals, [but] there is also a lucrative organized crime industry which revolves around the practice.”
B2B and B2C sellers are at risk, and industries lose billions of dollars annually to return fraud.
What is Return Fraud?
Return fraud is a crime by which someone (or a group of people) makes money from a fake return. Perhaps the item doesn’t qualify for a return, or the item was never purchased (i.e., stolen) in the first place. However the crime unfolds, the result is that the perpetrators steal money from the item’s seller.
Large consumer sellers are popular targets for return scammers, but fraud happens in the B2B world, too.
Return fraud exploits the customer-friendly return policies offered by retailers. It is one of the most prevalent types of retail fraud, affecting both online and physical retail spaces. It undermines trust between consumers and businesses and causes direct financial losses for merchants.
These crimes frequently occur through refund fraud. Refund fraud involves deceitful attempts to secure a refund for an item without actually returning it. This could be through making false claims about a product’s condition or delivery status. While return fraud directly impacts the revenue from the sale of goods, it further extends the financial damage by affecting the potential resale value of returned items.
Together, these practices are a significant challenge for retailers, who need countermeasures and monitoring to protect their return processes and their finances.
Facts about Return Fraud
Online sales have been growing, with about one-third of all retail sales in the U.S. expected to be conducted online by 2030. Unfortunately, these sales lend themselves easily to return fraud online.
According to the 2025 Retail Returns Landscape from the National Retail Federation (NRF) and Happy Returns, retailers report that 9% of returns are fraudulent. Appriss Retail’s 2026 Total Retail Loss Benchmark Report puts fraud at 2% of returns ($14 billion) and abuse at 12% ($86 billion), on $706 billion of 2025 returns. The figures differ because NRF counts what retailers classify as fraud, while Appriss separates malicious fraud (fake receipts, stolen goods) from abuse that stays inside the policy on paper (wardrobing, bracketing, tags removed).
The majority of returns happen in the months following the holiday season, with nearly 81% of all eCommerce returns taking place in January, according to Shopify.
Types of Return Fraud
Return fraud activities can range from the common to the absurd (like wrapping up a potato in an iPhone box and returning it to an Apple store, so the store associates assume there’s a phone inside).
Here are some of the most common types of return fraud and theft to watch out for, no matter your specific business.
Item never received
This popular scam involves the criminal claiming the item was not received and thereby getting a full refund from the seller. Of course, the item was received, and the criminal can now sell it for a profit.
Price arbitrage
This is a scheme in which the criminal falsely claims an item arrived damaged or faulty and gets a refund. In return, the customer returns a cheaper (but similar-looking) version of the purchased product.
Another approach (especially common on Amazon) is to claim that an empty box was received with no product inside. Yet another price arbitrage scam is to strip an electronics product of its valuable parts for resale, then return the product (which looks to be fully intact) for a refund.
In all of these cases, fraud is difficult to catch: Serial numbers must be compared, and products must be closely examined to ensure all parts are included. When companies deal with huge volumes of product returns and tight staffing, this attention to detail and time commitment is often deprioritized.
Price Switching
In price switching, a fraudster attaches a higher-priced tag to merchandise before returning it. This tactic enables the criminal to profit from the difference between the original purchase price and the inflated return value.
This scam exploits retail systems that may not verify the item’s initial sale price rigorously. The threat is especially severe in high-volume return environments or during peak times when staff are overwhelmed. Swapped price tags are hard to detect without checking returns against purchase records or digital inventory tracking.
Buy online pick-up in-store (BOPIS)
NRF singled out BOPIS as the most significant source of increased fraud, up nearly 20% from 2020 to 2021. In this scenario, the criminal claims to have bought a product online, lost the receipt, and is now returning the item to a store. SupplyChainBrain explains it further:
“It makes sense that criminals would capitalize on BOPIS programs because they can (in some cases) quickly close out a transaction without presenting a credit card or ID and drive away with an item they never paid for. In addition, BOPIS allows fraudsters to steal without ever entering the store or visiting the website.”
Wardrobing or Renting
Wardrobing happens when a shopper purchases an expensive item and returns it after one use. Because of inspection requirements, cleaning, and repackaging, clothing returns are particularly costly and labor-intensive for companies to process. Unfortunately, many returned clothing items end up in landfills.
Receipt Fraud
Receipt fraud involves criminals creating or altering receipts to return merchandise for a profit. They present a doctored receipt to validate the return of an item that was either not purchased, bought at a lower price, or even stolen. By convincing retailers to accept these returns based on the falsified documentation, perpetrators illicitly gain refunds or store credit at the expense of the business.
This type of fraud is complex and variable; as a result, it poses significant challenges for retailers. It might use sophisticated technology to forge receipts or use lax return policies with less tangible proof of purchase. Retailers facing a high volume of returns can find it particularly difficult to verify every receipt’s authenticity, especially during busy periods.
Returning Stolen Merchandise
Returning stolen merchandise is a simple form of return fraud. The perpetrator steals items from a store and later returns them, posing as a legitimate customer, to receive cash or credit. This results in direct financial loss to the retailer, complicates inventory management and skews sales data.
The challenge in combating this type of fraud lies in the retailer’s ability to differentiate between genuine and fraudulent returns. Identifying stolen goods is difficult without proof of purchase, such as matching the item with a transaction using a receipt or a payment record.
Employee Fraud
The term “employee fraud” covers many things. In returns, it means insiders using their position and knowledge of retail systems to take part in fraudulent returns. This form of fraud can range from employees processing returns of stolen merchandise without proper validation to collaborating with external parties in orchestrating returns for items that were never purchased or are ineligible for return.
Employee fraud is especially damaging because it abuses trust and policies designed to help customers. It causes financial losses through illegitimate refunds and can cost customer confidence.
Cross-Retailer Returns
Cross-retailer returns happen when someone purchases an item at one store and attempts to return it at another. This could be an accident, but it becomes fraud when done intentionally to exploit differences in return policies or prices between retailers. For example, someone might buy an item on sale at one store and then return it at full price at another store. A product purchased from one retailer may be returned to another where the same item is more expensive. Both methods aim for a profit or store credit that’s unjustly inflated.
This kind of fraud is tricky for retailers to catch. It involves products that are legitimately available across multiple stores. The major challenge comes in verifying the origin of the purchase, especially for stores within the same chain or those that carry similar merchandise.
Exploiting Return Policies for Cash Conversion
In this scheme, individuals buy merchandise only to return it later for cash, even when the original purchase was made using credit or a gift card. This tactic abuses the flexibility of return policies designed to enhance customer service by offering refunds in the original payment method or cash. The aim is to turn non-cash payment into cash with no transaction history tying it to the original purchase.
Retailers want accommodating return policies for customer satisfaction and loyalty, but they also have to guard against schemes that drain cash.
How to Prevent Return Fraud
Preventing return fraud is an ongoing effort: stop one threat and another appears. These strategies reduce the risk.
Give credit instead of cash refunds
Putting the customer first matters, but companies also have to protect themselves against refund fraud. Consider offering store credit instead of a cash refund in certain cases. That way, there’s less incentive for someone to return a fake item or commit fraud.
Tighten your returns policy
The simplest way to lower your rate of return fraud is to change your policy. This is especially important around the holidays when fraud rates rise sharply. You could modify the policy to include a holiday return cutoff date or place restrictions on popular orders requiring a shorter period for returning those items.
Get proof of delivery and require receipts
Choose a delivery carrier that can give you a tracking number or even a photo of the product when it’s delivered to the customer. This way, you have proof the item was received if a “not received” or “received damage” claim is made.
Require customers to return the invoice or receipt that came with a product and refuse returns that don’t include this paperwork. This will allow you to cross-reference the purchase and ensure you’re not giving money back for a sale you never made.
Leave a cushion
How does an electronics company keep a customer from buying a brand new flat-screen TV the day before a huge sporting event and then returning it the day after? By adding a cushion for big-ticket items, like a restocking fee. If you go this route, attach the fee to higher-priced items that are most enticing for fraud, such as electronics, seasonal items, and expensive fashion items.
Require Customer Identification for Returns
Requiring customer identification for returns is one of the strongest defenses against return fraud. A valid ID at the point of return makes it harder for scammers to manipulate returns and less appealing to exploit return policies.
It enables retailers to track return patterns and identify potential fraudsters, adding a layer of security to the transaction process. This policy can strengthen the integrity of returns without causing issues for honest customers.
Serial Number Tracking
Serial number tracking deters return fraud, particularly price switching and cross-retailer returns. This approach involves recording the serial numbers of items at purchase and rechecking them upon return. It ensures that the returned item is the same one sold initially, which blocks attempts to return stolen goods or items purchased elsewhere.
Time-Limited Returns
A time limit on returns reduces fraud such as wardrobing. A defined return window discourages the return of used or worn items and limits those looking to exploit long return periods.
Train Staff to Identify Signs of Return Fraud
Training staff to recognize the signs of return fraud is an important line of defense. An informed team reduces fraudulent returns by spotting suspicious patterns early. Ways to train staff:
- Educational Workshops: Conduct regular training sessions to educate employees about the various types of return fraud and the common tactics fraudsters use.
- Real-Life Scenarios: Use case studies and real-life examples to illustrate how fraudulent returns might be attempted in their specific retail environment.
- Spotting Red Flags: Teach staff to identify red flags, such as reluctance to provide ID, frequent returns without receipts, or items returned in an unusually new condition.
- Policy Familiarization: Ensure employees are thoroughly familiar with return policies and procedures and confidently enforce them.
- Communication Channels: Establish clear channels for staff to report suspicious activity or seek advice.
3 Use Cases & 15 Ways an RMS Catches Returns Fraud
A returns management system is supply chain software that’s purpose-built to manage the entire return lifecycle, from start to finish. It integrates with other core software (WMS, ERP, OMS, etc.) to be the central platform for all returns management tasks, data and reporting.
- Standardizes return rules and policies across your network (including partner 3PLs)
- Automates and streamlines employee workflows, which can be configured by product type, customer, sustainability goals and more
- In-depth data and reporting on returns cost, reasons, and other metrics
Scenario #1: Fraudulent BORIS returns
BORIS (buy online, return in store) is a convenient option for customers, and it’s often less costly for retailers to process returns in a store compared to receiving packages at a central facility. However, an in-store return can be a target for fraud. Criminals may:
- Claim they purchased an item online but lost the receipt
- Commit wardrobing (return merchandise that’s been used)
- Use a stolen or fake receipt to return an item
- Remove valuable components from an electronic device and only return the shell
- Use fraudulent or stolen tender to purchase the item being returned
- Attempt to return shoplifted items
An RMS is essential for catching fraud in these BORIS situations.
1. Because it integrates with other supply chain systems, the RMS gives a complete picture of the item’s purchase history. Employees can see whether the item was purchased legitimately and how.
2. Alert store employees that the customer has made suspicious returns in the past.
3. Cross-department information can check whether a stolen credit card was used to make the purchase online.
4. Detailed product information, such as weight, can be used to compare the returned item and ensure no internal components were removed.
5. Ask for the buyer’s contact details in addition to the receipt. An RMS can cross-reference that information with the original order and verify it was purchased by the same person.
Scenario #2: Returning counterfeit products
Criminals get very creative with high-value returns, like electronics or designer handbags and luggage. Counterfeit items can be easily missed in a busy warehouse. Here are some examples.
- They return a knock-off version that looks very similar to the brand-name item
- The criminal does a “switch” “upgrade” scam: They purchase a new version of something they already own, and return the old product in the new packaging for a full refund
- Price tag switching: The tag on a cheap item is replaced with one from an expensive item, so the return amount is more than what they paid
- Bricking: The criminal buys an electronic device, removes valuable components, and returns the stripped-down version for a refund
Here’s how an RMS can help:
6. It’s critical to match the serial number of the purchased item and returned item. When the return arrives at the store or warehouse, the employee scans the barcode and the RMS displays the associated serial number. This can be matched with the serial number on the returned item.
7. Detailed product information and images help staff ensure that the product on the screen matches what’s in the returned box.
8. The returned item’s weight can be compared to the original or expected weight of the original item, helping to catch whether parts have been removed.
A global appliance company implemented ReverseLogix RMS, which revealed that some returns were counterfeit. The company revised its return requirements to be very detailed, and standardized processes across its distributor network. It caught fake returns, identified customers who abused the policy, and saved significant money.
Scenario #3: Taking advantage of system delays
To make an omnichannel experience smooth, a lot of supply chain systems have to sync up: POS, merchandising, OMS, ERP, etc. Criminals take advantage of data synchronization delays to make fraudulent returns. They may:
- Duplicate or forge an e-receipt to return stolen merchandise
- Buy an item online, initiate a chargeback, and then quickly return the item to a brick-and-mortar store for another refund
As the central hub of all returns management activity and data, your RMS is the one source of truth when verifying returns-related information. It will:
9. Have omnichannel visibility into returns, preventing fraudulent and duplicate returns.
10. Help catch chargebacks that haven’t been filed yet.
11. Verify order information, such as where a product was sold, registered, and its condition.
12. Provide tracking visibility so a business can verify when a product was received.
13. Validate the purchase was authentic.
14. Provide data and reporting that alert you to suspicious return patterns or certain customers who make very frequent returns. You can even set up RMS rules for extra inspections of their returns.
15. Detailed workflows direct employees to thoroughly inspect and verify returned items.
How Returns Fraud Hurts Businesses
Returns fraud has real costs for retailers, especially online. The main ones:
1. Lost Revenue
Every fraudulent return is money out of the business. Refunds are processed, but the product may not be resellable. When scammers repeat this trick, the losses add up.
2. Increased Costs
Processing returns takes time and resources. Employees must inspect, repackage, and restock products. Businesses also pay for return shipping and may need to sell returned items at a discount.
3. Inventory Disruptions
Fraud distorts stock levels. If a scammer returns an empty box, the system still counts the return as valid. This makes it harder to track real inventory. Customers end up ordering stock you do not have, and the promised delivery date is missed.
4. Higher Prices for Customers
Retailers and e-commerce platforms often raise prices to cover losses when they lose money to fraud. Honest customers end up paying more because of dishonest buyers.
5. Stricter Return Policies
To limit fraud, some businesses create stricter return policies. While this helps reduce scams, it also frustrates honest customers who expect hassle-free returns.
How Return Fraud Happens in Fast Fashion
Fast fashion brands replenish shelves rapidly to keep up with trends, and that speed hides bad behavior. The industry is an easy target because prices are low, return policies are lenient, return volume is high, and reviews are quick. The rapid pace of fashion production further contributes to the cycle of fast inventory turnover. That opens the door to abuse.
Returns fraud takes many forms. Here are the most common:
- Counterfeit Returns: A fake item goes back in place of the original. Some customers return stolen merchandise as the real thing. Handling returned items presents a challenge for inventory management, as each item must be inspected and processed.
- Tag Switching: A cheap item is returned using tags from a more expensive one. Without verification tools, the swap goes unnoticed.
- Wardrobing Fraud: A shopper wears an item once, then returns it. The tags might be intact, but the item may still smell, have wrinkles, or show wear.
Why Fast Fashion Takes a Bigger Hit
Luxury brands inspect every return, and mid-market brands have established fraud teams. Fast fashion retailers operate on thin margins and rapid inventory cycles, which makes fraud harder to absorb.
- Trends fade quickly.
- Worn items lose value fast and often cannot be resold at full price.
- Reconditioning adds labor cost.
- Shipping and inspection cost more than the item.
A 5% fraud rate might not hurt a premium brand. For fast fashion retailers, it turns profit into loss. Over time, these small hits erode margins.
Use Returns Technology to Reduce Return Fraud
Most mid-sized and large sellers can reduce fraud opportunities with returns management technology. A returns management system (RMS) is a supply chain technology that coordinates and streamlines every aspect of the returns journey and after-sales care management.
From the customer experience to setting standardized workflows that ensure employees are inspecting and managing returns accurately, an RMS can give you better control over how returns are processed, verified and tracked. It integrates smoothly with your other supply chain systems, like WMS, TMS and OMS, which means you get a single source of insight into returns management, reasons and outcomes, from start to finish.
The ReverseLogix RMS is the only end-to-end returns management system built for retailers, eCommerce, 3PLs, and manufacturers. Whether B2B, B2C, or hybrid, the ReverseLogix platform facilitates, manages, and reports on the entire returns lifecycle. View our pricing plans or schedule a demo.
Returns fraud is a technology problem
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