'Return fraud' costs $9B a year

by  Jim Walsh, (Cherry Hill, N.J.) Courier-Post - USAToday.com

9:06PM EST December 11. 2012 - This holiday season, merchants are concerned about thieves who steal without even leaving the store.

A retail group puts a price tag of almost $9 billion a year on "return fraud," a crime where people exchange stolen goods for cash, use counterfeit receipts or bring back items that have already been worn or used.

One category of the crime, the return of clothing and other items purchased for special occasions, even has its own name: "wardrobing."

That issue affects about 65 percent of surveyed firms, according to a new report from the National Retail Federation.

In October, Hamilton County, Ohio, prosecutors charged six men in a 31-count indictment alleging money laundering, theft, identity fraud, telecommunications fraud and receiving stolen property stemming from the return of expensive women's clothing to Nordstrom.

The men would return the expensive evening gowns after wearing the items. Authorities say unknowingly, Nordstrom employees helped them steal more than $150,000 from Hamilton County, Ohio, businesses -- money authorities say was used to support their lifestyles and trips to transvestite balls around the country.

"Nordstrom has the quality of clothes that they like to wear to those balls," said Jeff Cutcher, a defense attorney for Christopher Scott, who pleaded guilty and was sent to prison for six years in the scam.

Among other findings, the retail federation said 45 percent of retailers report being victims of criminals who use counterfeit receipts to make returns.

Return fraud can affect honest consumers, according to the trade group.

Companies seeking to curb criminals often impose "shorter return windows and limitations on the types of products that can be returned," said Rich Mellor, the group's vice president of loss prevention.

Also, almost 75 percent of retailers now require customers to show identification when making returns, particularly if they have no receipt, the retail association said.

In Ohio, the six men were accused of making or obtaining counterfeit checks and cashing them in Cincinnati-area Kroger stores. The group used that money as well as stolen credit card numbers that were re-encoded onto other cards, authorities alleged, to buy gift cards. They then were accused of using gift cards to buy other gift cards to ultimately buy Nordstrom merchandise. That's because they could get cash for returning the items to Nordstrom stores across the country.

"What aided them the most is that Nordstrom had this friendly return policy. If the customer asks for cash, Nordstrom gave them cash," Cutcher said.

Nordstrom confirmed that.

"We do our best to accommodate our customers' requests for how they'd like their return handled. If they ask for cash we'll generally provide that for them," said Nordstrom spokeswoman Tara Darrow.

To get the cash refund, though, Nordstrom required identification. The men gave their actual drivers licenses with their real names.

This month, the National Retail Federation estimated return fraud's annual cost at $8.9 billion, according to a survey of 60 retail firms. Of that amount, $2.9 billion will come during the holiday season.

"Overall, retailers estimate 4.6 percent of holiday returns are fraudulent," the group said.

John Holub, president of the New Jersey Retail Merchants Association, acknowledged thefts spike during the holiday season but said merchants face a year-round threat from shoplifting rings.

"You have much more volume in stores during the holiday seasons," he said. "Professional criminals can take advantage of that, and there's just greater opportunity for mischief."

Retailers have made it a focus of their operations.

"Our members work very closely with each other," Holub said. "They are competitors, yet we have monthly intelligence-sharing meetings."

The National Retail Federation surveyed loss-prevention executives at discount and department stores, as well as pharmacies, supermarkets and specialty shops.

The federation previously estimated the retail industry last year lost $34.5 billion to all forms of "shrinkage," including employee theft, shoplifting, supplier fraud and paperwork errors.

That represented 1.41 percent of sales, down from 1.49 percent in 2010.

Contributing: Kimball Perry, The Cincinnati Enquirer