Fraudulent returns cost retailers billions. Learn how brands fight scams like wardrobing, item substitution, and donation models.
Retailers are losing tens of billions of dollars a year to a problem hiding in plain sight: the return box. A new report from LiquiDonate, a software platform that redirects unwanted merchandise to nonprofits, finds that fraudulenthit nearly $850 billion in 2025, up from less than $200 billion in 2007, and industry estimates suggest roughly 15 percent of those returns are fraudulent.
One in three shoppers admit to committing some form of return fraud, and nearly half of those polled say “bending the rules” is acceptable when they’re unhappy with a purchase. The report showcases a growing menu of scams. There’s wardrobing, where shoppers wear an item once and send it back as new. There’s item substitution, where fraudsters mail back rocks, bricks or empty boxes instead of the product.
There’s also “gutting,” where thieves strip the valuable components out of electronics before returning them as defective. Some schemes are organized. So-called Return-as-a-Service operations run refund scams for paying clients, and one U.S. federal case saw a defendant sentenced to 30 months in prison for helping steal more than $6 million through a fraudulent refund service. Retail executives surveyed for the report weren’t optimistic, with nearly 62 percent of respondents predicting fraud would get worse in 2026.
Behind the fraud numbers sits a simpler math problem. Processing a single return costs a retailer $25 to $30 on average, once shipping, inspection, restocking and lost margin are added up. Net retail margins hover around just 5 percent, according to NYU Stern research cited in the report, leaving little room to absorb losses.
Retailers are fighting back with a mix of tools such as tighter return windows, in-person verification for high-risk items, AI-based image comparison, RFID tracking and shared fraud databases across the industry. Some, like DSW, now reward loyalty members with looser return policies while penalizing one-off shoppers with shorter windows and fees. One of the more unusual fixes is a donation model.
Instead of shipping a return back to a warehouse for inspection and resale, some retailers now let customers send unwanted items directly to a local nonprofit. LiquiDonate, the report’s author, runs one such platform, verifying donations before refunds are issued and cutting fraud out of the equation by removing the physical item from the return pipeline altogether. The company says it has helped more than 150 brands donate over 15 million items since 2021.
Whether industry-wide adoption follows remains to be seen. But with returns fraud now touching nearly every corner of retail, the report argues that treating returns as a strategic problem, not just an operational headache, may be the only way to keep it from getting worse. WWD and Women's Wear Daily are part of Penske Media Corporation. © 2026 Fairchild Publishing, LLC. All Rights Reserved.
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