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Retail fraud is on the rise in the UK and Europe, with offenders becoming increasingly sophisticated in their tactics. The rise of phygital shopping and e-commerce has made both online and in-store fraud more prevalent, putting small businesses at a heightened risk of substantial financial losses. In this blog post, we'll explore the current landscape of retail fraud, examine the various types of fraud impacting retailers, and discuss strategies for safeguarding against these threats.
The Current Landscape of Retail Fraud
Retail fraud is on the rise, significantly impacting retailers financially. Reports indicate that losses surged to £5.4 million in the first six months of 2024, representing a nearly 2,000 percent increase from previous years.
Retail fraud has become so prevalent that it’s estimated that around 38% of UK shoppers have engaged in return policy abuse or fraudulent behavior over the past year. This suggests that some consumers may not even realize they are engaging in abusive practices, such as using an item once and returning it or participating in the "bracketing" trend—buying multiple sizes to try on at home, keeping the one that fits, and returning the rest.
Let's take a closer look at the various types of fraud that retailers are encountering today.
In-Store Key Fraud Threats
Shoplifting
Shoplifting is a form of theft where customers unlawfully take items from a store without paying for them. It usually occurs when customers conceal items in bags or under clothing and attempt to leave the store unnoticed. For example, a shoplifter might enter a retail store with a large handbag or oversized coat, which they then use to hide various items they intend to steal. Shoplifting can be committed by organized crime groups, but it can also be a crime of opportunity—where an individual sees a chance to steal and decides to act upon it.
Employee and vendor thefts
Internal theft occurs when employees or vendors exploit their access to business assets to steal items or cash from the register. This can involve an employee taking products home without paying or a vendor underdelivering goods and pocketing the difference. It is estimated that employees account for 36.5% of the total shrinkage problem identified.
Price tag switching
As the name suggests, price tag switching involves swapping price tags on items to pay less than the actual price. A common example is moving a clearance tag from one item to a different one and then claiming to purchase it at the discounted price.
Return frauds
Retail return fraud involves returning stolen, used, or counterfeit items in exchange for a refund or store credit. This type of fraud can take several forms. For example, someone might purchase an item and then later return a damaged or entirely different item in its place to get their money back. Another common tactic is to steal an item, and then return it for store credit or a refund, exploiting the store’s return policies. Some individuals may even use counterfeit receipts to facilitate the return.
Sweethearting
Sweethearting occurs when employees provide unauthorized discounts or free items to friends, family, or certain clients. For example, an employee might apply a special discount to a friend who isn’t eligible for it. While this may seem harmless to the employee, it can lead to significant financial losses for the business.
Unrecorded sales
Unrecorded sales happen when employees or cashiers make sales but fail to record them in the system. For example, they might take cash for a sale, give away the item, and pocket the money instead of ringing it up.
Self-checkout frauds
This fraud occurs when customers manipulate self-checkout machines, such as scanning a cheaper item instead of a more expensive one or tampering with the weights. For instance, they might scan a pair of socks but bag a shirt.
Wardrobing/renting
Wardrobing, also known as renting fraud, occurs when customers buy items with the intention of using them only once and then returning them. For example, someone might purchase a dress for a special event and then return it after wearing it. While some shoppers might see this as harmless, it actually abuses the return policy by claiming the item wasn’t used. This is problematic because items that are claimed to be unused can experience wear and tear, eventually becoming unsellable.
eCommerce Key Fraud Threats
Friendly/ chargeback fraud
This fraud occurs when shopper makes a purchase and receive the item, but later they contact their bank or credit card provider to request a cancellation of the order. Buyers can do this by claiming they didn’t receive the item or that the item received is damaged or not as described.
Promotion fraud
Promotion fraud occurs when individuals exploit or manipulate promotional offers to gain an unfair advantage. For instance, customers might use expired or unauthorized discount codes, or apply multiple coupons to a single purchase when only one is allowed. More sophisticated offenders may use VPNs to access discounts and offers available in other regions.
Account takeover
Account takeover happens when someone gains unauthorized access to a user’s account, often by stealing login credentials. This can lead to fraudulent activities such as making purchases or accessing personal information.
Transaction fraud
Transaction fraud involves unauthorized or deceptive financial transactions. This can include using stolen payment information to make purchases, or manipulating transaction details to divert funds or receive goods/services without payment.
INR fraud
INR fraud, or Item Not Received fraud, occurs when a customer claims they did not receive an item after making a purchase, despite having received it. They may do this to obtain a refund or replacement without returning the item.
Of course, these are just some of the frauds that retailers face today. Sometimes offenders exploit loopholes on websites, while others find ways to trick store staff and steal. Even though we can’t prevent all fraud completely, it’s important to be aware and take proactive measures to reduce the amount of fraud a business endures.
Proactive Measures for Retailers
Implementing robust security systems
Enhance the security of your brick-and-mortar retail space by leveraging advanced technology. Start by installing CCTV cameras, particularly in self-checkout areas where theft is more likely. Additionally, consider integrating RFID inventory tracking with your POS systems and security gates. Unlike traditional hard tags, RFID provides more accurate, item-level security, helping you better monitor and protect each item in your store.
Training staff to recognize and prevent fraud.
Train your team to recognize unusual or suspicious behavior, and educate them about current fraud practices. Empower them to report any fraudulent activities or exploitations occurring in the store. Clearly communicate what is acceptable and what is not, ensuring that all staff members understand when they are permitted to offer discounts or make item exchanges. Additionally, maintain a clear record of who handles transactions at the register to aid in investigations.
Strengthening digital security for online transactions.
Enhance the security of your online transactions by implementing robust digital security measures. Use encryption technologies to protect sensitive information, such as payment details and personal data. Employ multi-factor authentication to add an extra layer of security for user accounts. Regularly update your software and systems to guard against vulnerabilities and cyber threats. Additionally, monitor transactions for unusual activity to quickly identify and address potential fraud.
Developing clear return and refund policies.
Establish well-defined return and refund policies to ensure clarity and consistency for both customers and staff. Clearly outline the conditions under which returns and refunds are accepted, including time limits, acceptable reasons, and the condition of returned items. Communicate these policies prominently in-store and online to set clear expectations. Train your staff to handle returns and refunds according to these guidelines to maintain fairness and prevent abuse. Regularly review and update your policies to adapt to changing business needs and customer feedback.
Retail fraud is a growing concern, impacting both brick-and-mortar and eCommerce environments with increasingly sophisticated tactics. As fraudsters find new ways to exploit vulnerabilities, it is crucial for retailers to stay vigilant and proactive. By implementing advanced security systems like CCTV and RFID, training staff to identify and prevent fraud, strengthening digital security measures, and developing clear return and refund policies, retailers can significantly reduce their risk. While it may not be possible to eliminate all fraud completely, these proactive steps will help safeguard your business, protect your assets, and maintain trust with your customers.
