How Small Retailers Can Protect Against Return Fraud This Holiday Season
By Yan Payments
How can small retailers protect against return fraud this holiday season?
Return fraud is expensive and getting worse. Industry estimates put somewhere between 9 and 15 percent of all retail returns as fraudulent or abusive, and most of that damage lands on businesses that don’t have a big-box loss-prevention team. A handful of specific, enforceable policies, a receipt requirement, a restocking fee that’s actually disclosed, and a way to flag repeat offenders, will stop most of it without punishing your regular customers.
How big is the problem, really?
The National Retail Federation projected $849.9 billion in US retail merchandise returns for 2025, about 15.8 percent of total retail sales. Online purchases get returned at a higher rate, around 19.3 percent by NRF’s count. Fraud estimates on top of that vary by source: NRF and Happy Returns put fraudulent and abusive returns at about 9 percent of all returns in 2025, while a 2026 report from LiquiDonate puts the figure closer to 15 percent. Different methodologies, same direction: it’s a meaningful slice of an already large number, not a rounding error.
One number that’s easier to pin down: 72 percent of retailers now charge for at least some returns, up from 66 percent the year before. That shift tells you something: more merchants have concluded that a free, no-questions-asked return policy isn’t sustainable, even at the risk of some customer pushback.
What tactics show up most often?
A few patterns account for most of what retailers report:
- Wardrobing: buying an item, using it once (a dress for an event, tools for a single job), and returning it as new
- Receipt fraud: returning stolen merchandise using a fake, reused, or mismatched receipt
- Item switching: returning a box that looks right from the outside but contains a cheaper or broken item instead of what was purchased
- Serial returning: a small number of customers who return a disproportionate share of what they buy, often right at or just past the policy deadline
None of these require a sophisticated operation. They require a return policy that doesn’t ask for much and a staff member who isn’t looking closely.
What can a small shop actually enforce?
You don’t need REI’s loss-prevention budget to close most of this gap. A few policies that are realistic for a one- or few-location business:
- Require the original receipt or a lookup by card number for any cash refund over a set dollar threshold
- Set a clear return window (commonly 14 to 30 days) and post it at the register and on your return policy page, not just in fine print
- Charge a restocking fee for opened electronics, specialty, or made-to-order items, and disclose that fee before the sale, not after. A restocking fee that isn’t clearly disclosed up front is harder to enforce and, depending on your state’s consumer protection rules, can expose you to a complaint
- For electronics or tools, log serial numbers at sale and check them against what’s returned
- Track repeat returners in your point-of-sale customer profile. A pattern of returns right before a stated deadline, or returns of items that show signs of use, is worth a manual look before you approve the refund
When should you allow, flag, or deny a return?
| Situation | Typical response |
|---|---|
| Receipt, item unused, within window | Approve |
| No receipt, verifiable by card lookup, within window | Approve, store credit instead of cash |
| Item shows wear, no defect claimed | Flag for manager review |
| Serial number doesn’t match sale record | Deny, investigate |
| Customer has 3+ flagged returns in 90 days | Deny or require manager approval going forward |
Adjust the thresholds to your business, but having any version of this reference, even an informal one your staff can check, moves the decision off a single cashier having to guess in the moment.
What are big retailers doing that scales down to a small shop?
Some national chains, including REI, have started restricting or banning returns and exchanges for a small number of customers who are flagged as serial returners, while leaving their policy unchanged for everyone else. You don’t need an algorithm to do a version of this. If your POS system lets you attach notes to a customer profile, a simple flag after the second or third questionable return, reviewed by a manager rather than auto-denied by a cashier, gets you most of the benefit without the infrastructure.
The honest customers who return one gift three weeks after the holidays won’t notice any of this. The people this is meant to catch will.
Is return fraud the same as chargeback fraud?
No, and it’s worth keeping separate in your head: a fraudulent return happens at your counter or your return desk, where you still have some control over the decision. A chargeback happens after a card sale, when the customer disputes the charge with their bank instead of coming back to the store, and you’re reacting to a bank’s process instead of making the call yourself. We’ve covered how to document and fight chargebacks during the holiday rush in a separate post. The policies in this one won’t stop a chargeback, and the chargeback defenses in that one won’t stop a bad return. Most shops need both playbooks going into the holidays, not just one.
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