U.S. retail returns reached nearly $850 billion in 2025, a dramatic increase from less than $200 billion in 2007, with 80% of returns ending up in landfill rather than being resold, according to The State of Retail Return Fraud in 2026, a report published by returns company LiquiDonate. E-commerce has boosted this trend, with online return rates of 24.5% in 2024 compared to just 8.9% for in-store purchases.
Returns also have a dirty little secret: an estimated 15% of them are fraudulent.
Automated processes such as self-service return portals and prepaid shipping labels have improved consumer satisfaction, but also made returns easier, thus greasing the wheels for fraud. The anonymity of online transactions also lowers psychological barriers and can boost policy abuse. In fact, 76.2% believe fraud will rise or stay at the same level in 2026.
The financial impact of returns and fraud is substantial. On average, each return costs retailers between $25 and $30 once a company factors in shipping, payment processing fees and restocking. Shipping and label costs alone can run $7–$9 per return, contributing to an estimated $100 billion in annual logistics expenses industry-wide.
Additional costs arise from lost margins, markdowns and inventory distortions. These pressures are especially significant given that retail net margins are already so slim, averaging only about 5%.
The Fraud Impact
Returns fraud takes many forms.
Chargebacks and “friendly fraud”: This is where customers dispute legitimate transactions with their bank or credit card issuer to obtain refunds—saying “the order was unauthorized,” the “product never arrived,” “it wasn’t as advertised,” etc.—but keep the product in question. Such chargebacks bypass the retailer’s return and customer service processes entirely, shifting the dispute into the payments ecosystem. It also exploits consumer-friendly banking policies. Chargebacks and friendly fraud have been cited as particularly troublesome for Amazon and the third-party sellers on its marketplace.
Keep-it fraud: This exploits lax policies that allow customers to receive refunds without returning low-value items. Especially prominent for products priced under $30, the report states that nearly 60% of retailers offer “keep it” options on select items where the return effort isn’t worth the trouble.
Wardrobing fraud: Such temporary-use fraud involves purchasing items, wearing them once, and returning them as new. Estimates vary widely, but according to industry data, 13% to 70% percent of shoppers admit to wardrobing, with significantly higher rates observed among shoppers aged 18 to 34, according to the report. Wardrobing is especially a problem with high-end dresses and social occasion wear, pushing Nordstrom to eliminate its “no questions asked” return policy, citing fraud.
Counterfeiting fraud: Particularly troubling for luxury apparel and accessories, jewelry and electronics, consumers return fake or replica products in place of authentic items. This is exacerbated as companies look to lower costs and utilize “light-inspection or no-inspection workflows.”
Item substitution and empty box fraud: Taking advantage of returns processes that just scan the return box and issue a refund immediately, consumers return incorrect or worthless items, even empty boxes. One homegoods retailer noted they received a giant rock instead of the weighted blanket the customer purported to return. More sophisticated variations include “gutted” returns, where valuable components are removed from electronics before returning them.
Return-as-a-Service (RaaS): Such fraud involves criminal groups offering professional refund scams, sometimes generating millions in illicit gains. In a U.S. federal case, a defendant was sentenced to 30 months in prison for running an organized online refunding fraud ring that stole more than $6 million from retailers by helping consumers obtain illegitimate refunds.
Control the Return Channels
With return fraud not slowing down and tactics becoming more sophisticated, retailers must fight back with more advanced and integrated solutions.
The report recommends controlling return channels (like requiring in-person returns or third-party verification), strengthening policies through shorter return windows and proof of purchase, using technologies such as RFID, AI image analysis and blockchain for authentication, better post-return inspection processes and industry collaboration to prevent fraud across retailers.
But retailers face a difficult trade-off, as stricter controls that reduce fraud may harm customer experience and increase operational expenses.
To help curb the cost of returns and keep goods out of landfills, LiquiDonate offers a donation pathway. The company, which was named to Time Magazine’s Best Inventions list in 2025, works with 4,600 nonprofits across the U.S. and Canada, from Verloop knits to the Red Cross, to match up return items with organizations that accept them as donations.
Upon receiving the return form, the algorithm produces a shipping label so the consumer can send the return to an affiliate nonprofit within about 30 miles of that customer’s home. “So on average, the product has 90% less transit distance [than to a retailer’s warehouse], and reverse logistics costs are reduced by 60%. We’re introducing a new workstream into the equation,” said LiquiDonate founder Disney Petit. Consumers don’t get refund dollars until the return is confirmed.
“We tell retailers, ‘don’t liquidate, donate,” said Petit. “A nonprofit should never have to pay for a physical good that already exists in the world that someone doesn’t want or need anymore.”
