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Cyber-shoplifting adds to retailers' return woes after the holidays

Walmart workers sort through carts of returned items

Walmart workers sort through carts of returned items on Friday, Dec. 26, 2014, in East Farmingdale. Credit: David L. Pokress

For retailers and e-commerce merchants, the end of the holiday season can bring headaches from increased fraudulent returns, potentially exacerbated by the new practice of "cyber shoplifting."

The U.S. retail industry will lose an estimated $10.9 billion to return fraud this year, with retailers estimating $3.8 billion will be lost to return fraud this holiday season alone, up from last year's $3.4 billion, according to the National Retail Federation. Retailers polled estimate 5.5 percent of holiday returns are fraudulent.

"What's happening now is that retailers are offering generous [return] policies to consumers" as they try to capture market share, said Danielle Conte, a Centerport-based retail consultant and founder of customer shopping experience blog "Unfortunately, people are taking advantage of that."

The biggest factor this year: so-called "friendly fraud," in which shoppers buy items online, receive them (and keep them), but then dispute the charges on their bills, saying they never made the purchases or the merchandise never arrived.


The credit card issuer withdraws the money for the transaction from the merchant's account and returns it to the customer. As a result, the merchant loses the merchandise and the money for the transaction, and in some cases pays a "chargeback" fee ranging from $5 to $50.

Overspending and buyer's remorse may lead some shoppers to the practice, but it's "really just a customer who is lying," said Monica Eaton-Cardone, co-founder of risk management firm Chargebacks911 based in Tampa Bay, Florida. "It is basically cyber shoplifting."

Massive retail data breaches also have tempted consumers to lie and say they have been affected, claiming unauthorized charges on their cards, she added.

Chargebacks were created to protect consumers, but now some consumers are taking advantage of them, costing merchants lost sales, fees and merchandise, Eaton-Cardone said.

The practice has become "a growing epidemic for online merchants," she said.

To thwart consumers who regularly file chargebacks, retailers may keep records to prevent them from making purchases in the future. Frequent abusers may damage their personal credit or may end up paying for the merchandise, Eaton-Cardone said.


Likewise, return fraud has caused many retailers to require customers who are returning merchandise in person to show identification, which can allow tracking of that customer's returns.

Retailers estimate that 14.1 percent of the returns made throughout the year without a receipt are fraudulent, and as a result, more than two-thirds now require customers returning items without a receipt to show identification, according to the NRF.

When it comes to returns at brick-and-mortar stores, "there is plenty of opportunity and attempt to return items that are not legitimate," said Marshal Cohen, retail analyst with The NPD Group, a Port Washington-based market research company.

Fraudulent returns in-store can include returning stolen merchandise for a refund, returning an item purchased at one retailer to another retailer, or a customer buying a product at an outlet store at bargain price, then returning the item at a regular full-price store.

Deer Park-based beauty e-retailer's return policy accepts unopened merchandise within 30 days of receipt for a refund, minus shipping and gift wrapping charges.

"Our fraud rate is well below the stated e-commerce industry thresholds," said Jason Apfel, president of "We also have a dedicated team of individuals who manually screen a small percentage of . . . [returns] based on the results of our fraud software."

At Walmart, which has a 90-day return window, if a customer has made more than six returns without receipts, the company will automatically flag the transaction, requiring approval for the return from a manager, Walmart spokeswoman Sarah McKinney said.

"We count how many times you do a return without a receipt," McKinney said. "Unfortunately, there is not anything else we can do."

Here are a few major retailers' return policies: For Best Buy, purchases made throughout November and December can be returned through Jan. 15 with proof of purchase and identification. For Toys R Us, items purchased after Sept. 1 may be returned through Jan. 24 with a sales, gift receipt or online packing slip, but select electronics and entertainment items purchased after Nov. 1 may be returned until Jan. 9.

Target extended the time frame for returns for items purchased between Nov. 1 and Dec. 25 to Jan. 24. Target requires a receipt for all returns and exchanges, but can verify purchases made on a credit or debit card or gift card using its refund lookup system. For Macy's, there is no return deadline for most items.

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