Return Fraud Is Bigger Than a Bad Refund

Return fraud is usually discussed as a retailer problem.

Someone sends back an empty box. A lower-value product is substituted for the item originally purchased. A customer claims to have returned more merchandise than was actually inside the package.

The retailer takes the loss.

But the consequences may not necessarily end at the refund counter.

As retailers invest in better verification, fraud detection and return processing, they are changing what happens to merchandise much earlier in the reverse-logistics process.

For liquidation buyers, that's where things become interesting.

9% of Returns Were Estimated to Be Fraudulent

The National Retail Federation and Happy Returns' 2025 Retail Returns Landscape found that 9% of all returns were fraudulent.

Among retailers tracking specific types of return fraud:

71% reported increases in overstated quantities of returns.

65% reported increases in empty-box or "box of rocks" returns.

64% reported increases in decoy returns, such as counterfeit merchandise.

CALLOUT: 9% OF ALL RETURNS WERE FRAUDULENT IN 2025

Source: NRF and Happy Returns, 2025 Retail Returns Landscape

What Does a "Box of Rocks" Return Actually Mean?

It's almost exactly what it sounds like.

NRF describes the empty-box or "box of rocks" scheme as a return in which a package is sent back and potentially scanned for a refund, but the actual product is missing or has been replaced with something unrelated.

NRF has documented several other return-fraud tactics, including:

Empty boxes or unrelated objects

Label tampering

Price switching

Returning fewer products than claimed

Returns that exploit retailers that don't require proof of purchase

The tactics also evolve as retailers develop ways to stop them.

Retailers Are Fighting Back

Retailers aren't simply absorbing the problem.

NRF and Happy Returns' 2024 research found that 99% of retailers surveyed employed at least one tactic to reduce return fraud and abuse.

Those tactics included:

56% requiring item verification before issuing a refund

51% modifying refund methods after a designated timeframe

50% increasing return fees for fraudulent shoppers

44% blocking shoppers with high return rates

The technology is evolving too.

By the 2025 survey, 85% of merchants said they were employing AI to detect or prevent return fraud.

CALLOUT: 99% OF RETAILERS SURVEYED WERE ALREADY USING AT LEAST ONE TACTIC TO REDUCE RETURN FRAUD AND ABUSE IN 2024.

Why Should Liquidation Buyers Care?

This is where we need to separate documented facts from a reasonable industry question.

NRF's research documents increased verification, changing refund procedures, AI-assisted fraud detection and other efforts designed to identify suspicious returns.

What the research does not establish is that these measures have already produced a measurable change in the quality or composition of liquidation inventory.

We should not claim that they have.

But the possibility raises an important question.

If fraudulent merchandise is identified earlier in the returns process, could some questionable inventory be intercepted before it enters other reverse-logistics channels?

Could more merchandise arrive downstream having already undergone additional verification?

Could increasingly sophisticated fraud simply result in a different set of problems reaching secondary buyers?

We don't yet have enough verified industry data to answer those questions.

That is precisely why this is worth watching.

Return Processing Itself Is Changing

Fraud prevention is only one part of a larger shift.

In NRF's 2025 research, nearly two-thirds of merchants, 64%, said updating their returns process within the next six months was a priority.

Retailers therefore aren't just dealing with individual fraudulent transactions.

Many are reconsidering the systems surrounding returns.

NRF has discussed approaches including item verification, barcode scanning, behavioral risk scoring, AI-powered auditing and applying additional friction selectively to higher-risk returns.

For an industry that ultimately supplies enormous quantities of merchandise to reverse-logistics and secondary-market channels, changes happening this far upstream deserve attention.

The Question for Liquidation Buyers

Experienced buyers already know that the condition of customer-return inventory can vary enormously.

The more interesting question is what happens next.

WHAT WE KNOW

Return fraud is significant.

Retailers are documenting increases in several fraud tactics.

Retailers are increasing verification and changing return procedures.

AI and other technologies are increasingly being used to identify suspicious returns.

WHAT WE DON'T KNOW YET

Whether those changes will measurably improve liquidation inventory.

Whether additional processing will change the types of returns entering liquidation.

Whether fraudsters will simply develop new methods that create different downstream problems.

Whether liquidation buyers will eventually notice a meaningful difference in customer-return loads.

An Upstream Change Worth Watching

The liquidation industry doesn't exist separately from retail.

What happens at the retail counter, returns center, warehouse and reverse-logistics facility can eventually influence what moves farther downstream.

Return fraud is forcing retailers to reconsider those processes.

The question isn't whether return processing is changing. It clearly is.

The question for liquidation buyers is whether those changes will eventually become noticeable on the pallets they buy.

That's something worth watching.

Sources