The Real Cost of Return Fraud and How It Affects Prices

Key data point: Return fraud and 'wardrobing' — buying an item, using it, then returning it — are estimated to cost retailers billions of dollars annually across the industry.

Frequently Asked Questions

Q: What is 'wardrobing'?

A: It refers to buying an item, such as clothing, using it once (for example for an event or photos), and then returning it for a full refund.

Q: Does return fraud make discounts less trustworthy?

A: Indirectly — retailers sometimes build the cost of expected returns and fraud into their markup and reference pricing, which is one more reason 'was' prices don't always reflect a simple cost-plus calculation.

What Counts as Return Fraud

Beyond outright theft-related returns, softer forms like wardrobing — using an item briefly with the intent to return it — represent a significant and difficult-to-prevent cost for many retailers, particularly in fashion and formalwear.

How Retailers Price Around This Risk

Standard markup in categories with high return and fraud rates often accounts for an expected percentage of returned, damaged, or fraudulently returned inventory, which is baked into both the 'original' price and the eventual discounted price.

Why This Matters for Deal-Checking

A category's typical markup — and therefore its realistic discount ceiling — isn't only about material cost. Expected return and fraud rates are part of why some categories can sustain deeper discounts than their material costs alone would suggest.

The Practical Takeaway for Shoppers

None of this means shoppers should feel guilty about legitimate returns, but it does explain part of why a category-aware discount benchmark, rather than a flat percentage rule, better reflects real-world retail economics.