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Holiday Returns Scammers to Cost Retailers Billions An industry group's survey estimates scammers making returns will cost retailers $3.6 billion this holiday season.

By Phil Wahba

entrepreneur daily

This story originally appeared on Fortune Magazine

In a week from now, disappointed Christmas revelers across the United States will start heading back out to stores to return items like the hideous sweater Aunt Martha gave them for something they really want: cash or another item. It's a timeless tradition that is part and parcel of the way Americans celebrate the holidays.

But countless scammers will insinuate themselves within the hordes, many of them working as part of organized crime rings, and commit fraud that will deprive U.S. retailers of $3.6 billion in sales at a time they are fighting hard for any penny of revenue they can get. That number is up sharply from $2.9 billion just two years ago. In fact, the National Retail Federation's return fraud survey of executives at 60 leading retailers this fall found that about 5.5%, or almost one in twenty returns, is the work of a con artist.

"Return fraud has become an unfortunate trend in retail thanks to thieves taking advantage of retailers' return policies to benefit from the cash or store credit they don't deserve," said NRF Vice President of Loss Prevention Bob Moraca.

The crooks resort to all sorts of methods, from counterfeit receipts, including electronic receipts, to recruiting store associates to do an inside job. In fact, 78.2% of the surveys respondents have experienced return fraud by organized crime groups, compared to 60.3% last year. And more of the fake returns now stem from fraudulent or stolen payment methods, the survey found.

Retailers in recent years have had to loosen return policies to ease one of the most frustrating parts of shopping and win customers from rivals, by making it easier to get a return without a receipt and easing conditions. But that left an entry point for crooks. But now more stores are asking customers to produce identification when returning merchandise, the survey found.

All told, $3.6 billion is not all that big a chunk of change considering that the NRF is forecasting retail sales will rise 4.1% this holiday season to $616.9 billion. (For the full year, returns fraud is expected to cost the industry $10.9 billion.) But the upward trend is worrisome, and with retailers from Wal-Mart Stores and Target to Macy's and J.C. Penney forecasting tepid growth this quarter, the profit-sapping rise in fraud deprives them of much needed sales and profits.

Phil Wahba joined Reuters in 2008 and has covered the exchanges, equity capital markets (IPOs), corporate bankruptcies and now covers retailers such as department stores and booksellers

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