Reach Of The Week: NRFs Return Fraud Claim

You might have seen recent media reports that the National Retail Federation was predicting some $200 million in additional return fraud this year. However, a closer examination of what that figure is based on wins the news release the award for our Reach of the Week.

In the NRFs second annual return fraud survey, the retail group asked 60 loss prevention execs in October what they projected their fraud rate would be this holiday season. Please note they have no basis to make such a prediction—given the lack of paperwork filed by the typical shoplifter and related fraudsters—other than to project off of last years figures.

Therefore, its no surprise that the execs essentially said that it would be the same as last year. Clearly, though, no statistical analysis is ever precise, which is why surveys have a margin of error. This is especially true when the sample size is as small as 60 (some surveys query more than 10,000 people).

The NRFs reported figures calculate to a projected 8.93 percent holiday fraud prediction for this year, compared with an 8.67 percent prediction from last year. If you round both numbers up to 9 percent, it means no change in the prediction.

But despite the small sample size, no margin of error was reported, and the fact that these were projected guesses (which presumably have little, if any, foundation), the NRF news release took the literal percentages and concluded that retailers will lose "an estimated $3.7 billion this holiday season, up from $3.5 billion last year."

Please dont get us wrong. Retail return fraud is a critical issue, and its likely to increase every year. But hanging ones hat on a $200 million increase with such a flimsy foundation undermines this very serious issue. When they have a real number the next time, it will be looked on with duly-warranted skepticism.

Retail Center Editor Evan Schuman has tracked high-tech issues since 1987, has been opinionated long before that and doesnt plan to stop any time soon. He can be reached at Evan.Schuman@ziffdavisenterprise.com.

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