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How to Spot (and Stop) Return Fraud Before It Hurts Your Retail Business

May 30, 2025 / 9 minute read / By Zoya Naeem

Return fraud is eating into your margins. Learn how you can spot it and prevent it without losing customers.

Retailers are no strangers to returns, it’s part of doing business. But when those returns are based on deception, not dissatisfaction, the damage goes deeper than just lost revenue.

Return fraud is rarely dramatic.

There’s no smashed glass or late-night alarm, but the impact builds quickly, often unnoticed until it starts eating into margins. And it’s not rare, in fact, according to the National Retail Federation, U.S. retailers lost an estimated $101 billion to return fraud in 2023 alone. It’s not a seasonal bump, it’s a year-round issue quietly draining profitability.

Part of the challenge? Fraud can take many shapes from customers wearing and returning clothing, to falsified receipts, to internal schemes involving staff. And as retail continues to expand across stores, ecommerce, and third-party marketplaces, the return process becomes harder to control and easier to exploit.

Which is exactly why we are doing this guide to walk you through the most common types of return fraud, how to recognize early signs, and what tools and processes can help retailers catch issues before they become habits.

Here’s what we’ll be covering:

The Most Common Types Of Return Fraud (And Why They Are Hard To Catch)
Red Flags To Watch For Before They Drain Your Margins
Tools and Policies to Prevent Return Fraud Without Hurting Customer Experience
Policy Without Practice Doesn’t Work (Why Training Your Team is Important)
How Celerant Helps You Build a Smarter Returns Process

The Most Common Types of Return Fraud (And Why They Are Hard To Catch)

The thing with return fraud is that it isn’t always elaborate, and that’s exactly what makes it effective.
Many cases look like regular returns on the surface, slipping through even the most seasoned staff and systems. But over time, these behaviors chip away at your margins, distort inventory levels, and create unnecessary friction for honest customers.

Here are some of the most common types of return fraud that retailers should watch for and how they typically show up in-store and online:

Type of Fraud	What It Looks Like
Wardrobing	Customers purchase clothing or accessories, wear them once (often with tags carefully hidden), and return the items as if unused. Typically tied to events like weddings, holidays, or content shoots. Example: A shopper buys a suit for a formal dinner, keeps the tags discreetly tucked in, and brings it back the next day with a smile and a “didn’t fit quite right.”
Receipt Fraud	Fraudsters present stolen, photoshopped, or reused receipts to return items they never bought, or to manipulate the return amount. Often involves coordination across stores or reselling schemes. Example: Someone finds or steals a real receipt, then uses it to return a cheaper or unrelated item, hoping staff won’t notice.
Price Switching	A customer swaps a lower price tag onto a higher-priced item before checkout, pays the reduced amount, and then returns it later using the original (higher) price tag to get a bigger refund. Example: A jacket priced at $129.99 gets tagged with a $49.99 label. Once purchased, the fraudster returns it for the full $129.99.
Employee Collusion	Internal staff members work with outsiders or act alone to approve fraudulent returns, override system alerts, or issue gift cards for non-returnable items. These cases can go unnoticed for months. Example: A cashier agrees to process a return without a receipt and quietly splits the refunded cash with the person returning it.
Return of Stolen Goods	Shoplifted items are brought back under the pretense of a legitimate return. Some thieves target stores specifically to “convert” stolen items into cash or store credit. Example: A customer walks in with a brand-new item (lifted minutes earlier), claims it was a gift, and requests a refund or gift card.
Bricking (Electronics)	Fraudsters damage, tamper with, or swap parts in electronics and return them claiming the product was “defective.” Harder to catch unless your store tests items before accepting returns.

Pro Tip:

If your POS tracks return activity per customer, you can catch patterns early, like repeat returns of high-ticket items or a spike in receipt-less refunds. Modern retail systems like Celerant offer built-in CRM tools and return authorization workflows that help you enforce fair return policies without making everyday shoppers feel like suspects.

Red Flags to Watch Before They Drain Your Margins

Once you’re familiar with the most common types of return fraud, the next step is knowing how and where they tend to show up before they quietly start eroding your profits.

Fraud doesn’t always announce itself. In many cases, the patterns only become obvious when you’re tracking the right details across your in-store and online channels. Whether you run one location or twenty, knowing what to watch for can help you catch issues early without adding friction for honest customers.

Here are some key behaviors you want to monitor:

Frequent returns from the same customer account

If a shopper is returning items weekly or even multiple times in a single week, it may be worth taking a closer look. This is especially important for higher-ticket items or categories known for wardrobing, like dresses, accessories, and seasonal outerwear.

Multiple high-dollar refunds without receipts

While the occasional no-receipt return is normal, a pattern of them, especially for expensive merchandise can be a sign of fake receipts, price switching, or even collusion.

Returns across different store locations for the same item

This often happens in larger operations where someone buys (or steals) a product at one location and attempts to return it at another to reduce suspicion. Cross-location reporting can help you spot these inconsistencies quickly.

Excessive returns right before a season ends

This one’s classic for fashion retail. Customers may return seasonal items after they’ve been used right before they go out of rotation. If you see a spike in returns for winter coats in March or swimwear in August, that’s a red flag worth investigating.

Staff processing high volumes of returns for a small group of customers

Sometimes the issue isn’t the shopper, it’s an internal link. If a particular team member consistently handles refunds for the same handful of shoppers, it could indicate a deeper issue worth auditing.

Let’s say you notice that a customer has returned eight pairs of shoes over the last month, each time from a different store location, and often without the original box or tags. That pattern alone might not raise alarms, but when you zoom out, it looks a lot like wardrobing or coordinated fraud.

Pro Tip:

When your POS connects sales, returns, and customer profiles across every location, it becomes easier to spot patterns that don’t quite add up. So, it’s important when choosing a retail system, you pick an all-in-one retail system like Celerant, that offers return insights and custom reporting to provide retailers a holistic view of shopper behaviors, store-level activity, and even staff return trends without needing a forensic accountant on the team.

Tools and Policies to Prevent Return Fraud without Hurting Customer Experience

Spotting return fraud is only half the equation. The other half is knowing how to respond in a way that protects your margins, without making your loyal shoppers feel like suspects.

Retailers walk a fine line here. Go too strict, and you risk frustrating good customers.

But with the right tools and smart policies, prevention doesn’t have to feel punitive. It can be a subtle, built-in part of your operations that works quietly in the background while helping your team make better decisions at the counter.

Here are a few proven strategies that strike that balance:

Set clear, consistent return windows and conditions
Make sure your policy is easy to understand for both your team and your customers. Clearly stating return timeframes, what condition items must be in, and which items are final sale helps set expectations upfront.
Require receipts or IDs for returns
This step alone cuts down on several types of fraud, especially when combined with systems that validate original purchase data in real time.
Implement return limits for high-risk customers
Frequent returns aren’t always malicious, but if someone consistently pushes the boundaries, it’s worth applying more scrutiny. Flagging accounts for review or limiting non-receipted returns is one way to do that without overhauling your entire policy.
Use return reason codes to collect data
Capturing why customers return products using dropdown codes like “damaged,” “didn’t fit,” or “changed mind” can reveal useful trends that go beyond fraud detection.
Create tiered return policies for loyalty members
Reward your best shoppers with more flexible return options while applying stricter rules to new or anonymous buyers. This keeps things fair while encouraging account creation and repeat business.
Invest in POS systems that validate receipts and track return behavior
When your system ties returns back to real transaction data, you can weed out fakes quickly. You can also build return rules by location, time, customer profile, or item type, giving you more control with less manual work.

Policy Without Practice Doesn’t Work (Why Training Your Team is Important)

No matter how sophisticated your POS or how well-crafted your return policy is, it won’t get far without your team behind it.

Frontline staff are often your first and best defense against return fraud. But that only works if they know what to look for and feel confident applying the policies you’ve put in place. The key is turning policy into everyday practice, without making interactions feel cold or confrontational. And you can do that by:

Training associates to recognize red flags and return frauds,
Creating return scripts so staff can enforce policies consistently.
As having a pre-approved language makes it easier for employees to apply rules without putting customers on the defensive.
Rewarding employees for following procedures, not just sales, and
Encouraging staff to log anomalies or suspicious interactions in the POS.
Even if a return goes through, having a note on the transaction (“worn look,” “agitated response,” “missing tags”) helps build a record if patterns emerge later.

Ready to Build a Smarter Return Process That Protects Your Margins? Start with Celerant.

You cannot fully eliminate return fraud, but you can take the uncertainty out of managing it.

With a thoughtful mix of policy, training, and the right tech behind your counters, you can reduce risk, protect your margins, and keep honest customers coming back. The key is using tools that surface the red flags early so you can act fast, without second-guessing your decisions.

That’s where Celerant comes in.

Our retail platform gives you a holistic view of return trends across every channel and location. From identifying patterns in customer behavior to enforcing flexible, data-backed return rules, Celerant helps you create a smarter process that supports your team and respects your customers.

Interested in learning how we can help tighten up your returns without losing trust?

Request a Demo

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