Fashion Fraud

Everybody needs clothes, most people want to own nice clothes, and some people want really, really nice clothes but only for a single occasion. Needless to say, fashion merchants are frequent targets of theft and fraud.

Theft has to be carried out in-person at the store location, but retail scams can strike at unexpected moments and in unusual ways, and you may not even recognize them while they’re unfolding in front of you. What are the most common scams faced by fashion retailers, and how can merchants learn to identify and avoid them?

So far, this decade hasn’t gone easy on brick-and-mortar merchants. The pandemic prompted closures and shopping restrictions, leading many consumers to make drastic changes to their retail purchasing habits. Merchants who were unable to make a pivot to e-commerce were often left behind.

Even though many customers are eager for a return to normal in-person shopping, many challenges remain and the last thing retailers need is to be dealing with scammers, fraudsters, and unethical employees.

Nevertheless, organized retail crime did nearly $69 billion in economic damage in 2019 alone. While that figure does include in-person shoplifting, scams involving fraud and employee theft are a growing concern, particularly for high-end retailers—these merchants experience fraud at more than double the rate of mass-market retailers.

While it’s true that fraudsters are always trying to find undiscovered vulnerabilities and invent new schemes, the good news is that most of them are not that creative and will simply use familiar old methods until they find an unprotected target. Knowing what these scams are and how they can be recognized is essential to preventing them.

The Top 6 Fashion Retail Scams

Wardrobing

A classic example of the type of small-time fraud that “ordinary” people might engage in without considering the harm it does to merchants, wardrobing is when a customer purchases an item for a one-time event (like a wedding or prom), wears it, and then returns it afterward. Items are rarely returned in like-new condition, but some retailers may feel boxed in by their return policy and accept it.

Sweethearting

This is one of the most widely-seen forms of employee fraud and it’s anything but sweet, based as it is on abusing the employee discount benefits merchants offer to their employees.

Sweethearting can simply mean leveraging one’s position as an employee to extend inappropriate discounts to friends and family, but it can involve other forms of collaborative theft that touch on some of the other scams listed here, such as gift card fraud and inventory manipulation, or “forgetting” to ring up certain items during checkout.

Gift Card Fraud

As gift card technology has grown more affordable, accessible, and ubiquitous, fraudsters have taken note and sought out various ways to exploit it. Many of these schemes involve using gift cards to launder funds generated from stolen credit cards, but it’s not unheard of for fraudsters to try to hack or decode gift card systems directly.

Gift cards are also commonly used in employee fraud—for instance, an employee might ring up a gift card purchase, activate the card, and surreptitiously hand the customer a different, inactive card.

Employees may also try to steal funds by ringing up fake refunds on gift cards, which is much less likely to be noticed right away than a cash refund.

Inventory Manipulation

Employees who have access to the store’s inventory management system can steal merchandise and delete it from the system so that nothing appears to be missing. Without regular counts and reconciliations, this kind of fraud can go unnoticed for a long time. New deliveries can be a particularly vulnerable moment for this type of fraud, as any discrepancies can be excused as shortages from the supplier.

False Cash Return

Similar to wardrobing, this scam involves obtaining an undeserved refund from the merchant. The difference is that here, there is no basis at all for a refund; the product being returned has been stolen or obtained on the secondary market. Often, fraudsters will walk out of the store with a shoplifted item one day and walk right back in to return it for cash the next.

In an employee fraud scenario, the employee may use copies of real customer receipts to process fake refunds and pocket the money for themselves.

Credit Card Fraud

Every merchant knows that their store can become a target for credit card fraud. Fraudsters use stolen cards to make purchases, keep or sell the goods, and leave merchants to deal with the chargebacks once the cardholders realize they’ve been victimized.

However, merchants can also become a vector for credit card fraud if they have unethical employees who use their privileged position to steal customer payment credentials. This can cause severe damage to your brand reputation.

How Can Fashion Merchants Avoid Scams?

To prevent fraud, you have to be able to tell when it’s happening. Many of the above scams are reliant on the merchant neglecting to provide proper oversight in some area, which allows the fraudster to act with impunity

• Maintain a thorough inventory control system that includes gift card tracking.
• Train your employees well and make sure they understand your policies regarding friends and family discounts, returns, and credit card processing.
• Analyze your transaction, return, and chargeback data to determine the sources and causes of the fraud you are experiencing.
• Use anti-fraud software, such as fraud filters, to detect and block credit card fraud.

If you suspect employee theft, surveillance systems may be necessary.

Conclusion

Like a ratty old band t-shirt that your partner just won’t get rid of, fraud is a problem that’s never really going to go away. However, the solution here is not to just give up and pretend it’s not there.

Treat fraud and chargebacks like just another unavoidable cost of doing business, and you'll watch as they eat away your revenue and corrode your hard-built reputation.

With a solid plan, the right tools, and a supportive team, merchants can find effective ways to counter retail scams and ensure that they aren’t being taken advantage of by their own employees.

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