Reducing Retail Return Fraud Without Adding Friction

July 7, 2026 • 9 minute read
Author: Phyllis Jackson, Senior Manager, US Marketing, UPS

Key Points

• Fraud is a significant issue for 93% of retailers, and 99% are actively using a prevention tactic to reduce return fraud.¹
• Retail returns reached almost $850 billion in 2025, and 9% of those returns were fraudulent.²
• Nearly 67% of customers say a poor returns experience will make it unlikely they’ll shop with the retailer again.¹

Types of In-Store and E-commerce Returns Fraud

Returns fraud is a growing and costly problem for retailers, making already complex fulfillment operations even harder to manage. Retail returns reached almost $850 billion in 2025, and 9% of those returns were fraudulent.² Fraud typically shows up in six common forms:¹

1. Empty Box Returns (a.k.a. “Box of Rocks”)
   A customer requests a refund and ships back a box that looks genuine (same weight, same feel), but inside? It’s empty and has no value. Meanwhile, the customer keeps the product, resulting in a loss for the retailer.
2. Price Switching
   A customer buys a more expensive item and then returns a cheaper look-alike from the same retailer, keeping the higher-value product while only paying for the less costly one. The swap is subtle, but the loss is genuine.
3. Overstated Quantity Returns
   A customer buys multiple items and then claims to send back more than they actually do. The counts don’t match, and if it’s not caught, the retailer ends up refunding inventory that was never actually returned. Research revealed that 21% of shoppers admitted to doing this.²
4. Label Tampering
   A shopper modifies the retailer-provided return label with PDF editing software before sending back their return package. The fake tracking ID is scanned, showing that the item has been returned and a refund is being processed, while the package is shipped to an undisclosed location. About 20% of shoppers said they’ve tampered with labels.²
5. No-Proof Returns
   A customer returns an item they said they purchased online without a receipt, order confirmation, or proof of purchase, resulting in a refund for an item they never actually bought. This type of fraud exploits buy-online, return-in-store policies.
6. Decoy Returns
   A buyer returns counterfeit merchandise and gets a refund for a more expensive item by swapping tags. Nearly 20% of shoppers admit to doing this.²

“Retail return fraud doesn’t just hit the bottom line; it also throws inventory out of sync. When the wrong items are returned or don’t come back at all, retailers lose track of actual stock levels,” says Jarret Arnold, Retail Strategic Lead, UPS. “The result is missed sales, frustrated customers and fulfillment breakdowns. Over time, profits shrink, costs escalate and customer trust erodes as shoppers face out-of-stocks and delays.”

What Can Retailers Do To Combat Returns Fraud?

Nearly all retailers are actively combating return fraud. In fact, 93% of retailers say fraud is a significant issue in their business, and 99% are actively using a prevention tactic to reduce return fraud.¹ Some of those tactics include person-to-person drop-offs, visual verification of returns and no-print-label returns.

Returns have become an essential part of the shopping experience, with 82% of customers saying free returns are an important consideration when shopping online and 71% saying a poor returns experience will make them less likely to shop with a retailer.² A smarter returns management solution that combats fraud but still meets shopper expectations can help retailers gain a competitive edge.

Returns Policy Exploitation Is Costly

Returns abuse is another problem for retailers. Although not always fraudulent, when used excessively, these practices exploit lenient return policies designed to deliver a smooth customer experience. The most common forms of returns abuse include redundant wardrobing, bracketing, non-receipt returns and serial returns.

What is Wardrobing?

Wardrobing occurs when a customer buys a piece of clothing for short-term use and then returns it, expecting a full refund, treating the purchase like a free rental. Research shows 27% of shoppers admit to wardrobing.²

What is Bracketing?

With bracketing, a customer orders multiple versions of the same item (different sizes, styles, fabrics or colors), planning from the start to keep just one or a few and return the rest, effectively turning the retailer into a fitting room at scale. More than one-third of shoppers (36%) admit to bracketing.²

What Are Non-Receipt Returns for Store Credit?

These are instances where customers return items without a proof of purchase to get store credit.

What Are Serial Returns?

Serial returns happen when customers repeatedly buy and return merchandise, often as part of their normal shopping habits.³ While not always deliberate abuse, patterns caused by impulse purchases or habits like wardrobing can quickly add up and cause inventory issues for retailers.

“Returns abuse can create a debilitating ripple effect across the entire retail operation,” Arnold explains. “What looks like a customer convenience can quietly become a significant cost center, hurting profitability, efficiency and trust at scale.”

What Are Small Retail Fraud and Abuse Mitigation Strategies?

The smartest strategies protect margins while preserving trust and convenience. Ideas include:

• Requiring receipts or ID for returns
• Tracking excessive returns activity
• Using analytics to flag suspicious patterns
• Verifying with tamper-proof QR codes

These strategies can help reduce fraudulent refunds and behaviors like wardrobing without disrupting the experience for shoppers.

One comprehensive solution available to clothing and footwear retailers is Happy Returns, which created the Return Bar® Network—comprising 10,000 staffed, in-person drop-off locations (including 5,500+ The UPS Store^® retail locations)—to simplify returns for shoppers by making them quick and label-free. This is the largest consolidated returns network in the United States and supports the full lifecycle of ecommerce orders.

Retailers may find that the scalable Happy Returns system can provide greater control and visibility with:

• In-person verification with trained associates who verify returns, adding a physical check that’s difficult to bypass.
• Risk behavior scoring that flags suspicious returns. A specialized team investigates questionable activity to resolve the risk.
• Return Vision™, which combines AI image analysis, behavioral data and auditing to detect fraud in high-risk returns.

Retail returns fraud spans physical stores, e-commerce sites and mobile apps. Smart strategies connect the dots across channels for a clearer, more comprehensive view for online orders, point-of-sale transactions, buy-online-pickup-in-store (BOPIS) and loyalty programs.

Shoppers Want Quick and Easy Returns

Frictionless retail returns are designed to be quick, simple and low effort for customers. They involve few steps and a clear returns window, with minimal paperwork or delays. Instead of printing labels, repackaging items, or waiting weeks for refunds, shoppers can return products using straightforward options like QR codes, no-box/no-label drop-offs, in-store returns for online orders, or instant refunds after scanning.

Some retailers are also using a Happy Returns’ return wallet pass to provide shoppers with instant access to their return QR code, item details and refund status. The QR code can be saved to an Apple or Google wallet, making the returns process simpler and stress free.

Any return requires the consumer to take action but making that action quick and easy is important. Consider these facts:

• 82% of customers say free returns are an important consideration for purchases.
• 57% of shoppers decided not to shop with a retailer after being charged for returns.
• 71% of shoppers say a poor returns experience will make them less likely to shop with that retailer again.
• 80% of shoppers may share a bad returns experience with friends and family.²

The Importance of Prioritizing Returns Management

Returns management is an essential component of an omnichannel retail strategy because it helps to protect margins and deliver a consistent experience to customers wherever they shop.

“Returns aren’t just a cost of doing business,” Arnold explains. “They’re a critical part of the supply chain that impacts inventory accuracy, profitability and customer loyalty.”

By investing in better visibility, streamlined processes and smarter policies, retailers can reduce losses, improve efficiency and turn returns from a drain on resources into a more controlled, strategic advantage. Customers expect the ability to return or exchange items, so communicating your specific policies limits incorrect assumptions about what your business allows.

Tips for effective returns management include:

• Plan early. Build returns into your overall fulfillment strategy, not as an afterthought.
• Set clear policies. Communicate policies, including return windows, clearly and up front so customers know what to expect. Sharing returns information from the start (on your website, in the store and through customer associates) helps meet their expectations.
• Streamline the process. Provide frictionless returns with box-free label-free options, QR codes and easy return workflows. Data shows that 82% of shoppers think a return should take 10 minutes or less, and 76% of shoppers want returns that don’t require packaging or label printing.²

“As fraud tactics grow more sophisticated and customers expect fast, flexible returns, retailers face increasing pressure to provide seamless experiences while managing the risk of abuse,” Arnold says. “Retailers must recognize patterns, understand tactics and respond with smart, balanced controls that deliver a smooth customer experience.”

¹ “Beyond the Box: How smarter returns technology prevents retail return fraud,” Happy Returns, accessed March 27, 2026.
² “2025 Retail Returns Landscape,” Happy Returns, accessed March 31, 2026.
³ $103 Billion and Counting: Fighting the Growing Impact of Return Fraud, Kase, August 26, 2025.

Individual results and options will vary. UPS makes no promises of any specific outcome in this document but instead provides only example outcomes based on certain UPS customer experiences.