$2 Billion of Retail Fraud Could Be Ruining Nordstrom’s Legendary Return Policy

Nordstrom’s customer service is the stuff of legend. The Seattle-based retailer consistently ranks as shoppers’ No. 1 choice of department and discount stores for customer satisfaction, even as other stores struggle.

Part of the reason shoppers are so loyal to Nordstrom is the company’s liberal return policy. It’s so great that customers often brag about the kinds of returns they can get away with at Nordstrom.

There are virtually no limits on when you can return, how much you can return, and to where. Per the company’s website, “We handle returns on a case-by-case basis with the ultimate objective of making our customers happy … If we choose to provide a refund and no record of sale is available, a return is provided at current price on a Nordstrom Gift Card.”

But there’s a catch — Nordstrom, acknowledging its liberal return policy, maintains an “internal auditing” log that lets the store keep track of who’s buying and returning what, when, and how frequently. That’s why Nordstrom asks for an ID when you request a refund.

The company’s return policy is evolving as consumers find new ways to abuse it. Special occasion dresses, for example, now have tags stating that if the tag is removed, the dress can’t be returned. That’s because customers were complaining that their special occasion dresses had already been worn when they purchased them, an observation that matched Nordstrom’s own tracking, Nordstrom spokesperson Emily Sterken told Yahoo Style in an email.

And you used to be able to ask for cash refunds on returned purchases; now, a credit is applied to either the original form of payment or a Nordstrom gift card, a change that was made recently.

“Occasionally there have been situations where we have felt a customer wasn’t being fair with us, like when their returns to Nordstrom were greater than their purchases with us or when we have no record of ever having sold the item being returned,” Sterken said.

Return fraud is rampant in January, since customers try to return holiday gifts without any indication they were actually purchased at a given store. A report from the National Retail Federation, an industry trade group, found that 3.5 percent — over $2 billion — of holiday returns — not only at Nordstrom but across retailers — are fraudulent.

Nordstrom declined to comment on how many returns the company handles as a percentage of sales in January, but says it’s a topic that will be discussed during the company’s earnings call in February.

Nordstrom is finally cracking down on shoppers who take advantage of the company’s leniency by banning them from making purchases online and in stores. Of serial returners, Sterken said: “In cases like this, or other types of situations where we suspect unfair or dishonest activity, we’ll follow up with the customer directly and may ultimately make the decision to stop serving them in our stores and online.”

The problem isn’t exclusive to Nordstrom, but its return policy makes the company an easy target for scammers. The NRF found that every retailer surveyed said it was a victim of organized retail crime in the last year.

The damage that one malevolent shopper can do to a store’s bottom line can be massive. There is the viral story of the woman who returned 226 “designer” bags — that were actually fakes — to various department stores in a year period, and made more than $400,000 off the scam.

And at Nordstrom, scammers have used online shopping and identity theft to steal. In 2012, two brothers pled guilty to wire fraud after falsely claiming refunds for “undelivered” merchandise, ultimately draining Nordstrom of $1.4 million.

More recently, a California woman was arrested after police suspected her of using other people’s Nordstrom account information to buy items and return them for cash at the store. Police estimate she made off with $24,000 in merchandise.

As Nordstrom resists the trend dragging mall anchor stores into the abyss, cracking down on return fraud is one way the company can cut its losses. Here’s to hoping that bad seed shoppers don’t ruin Nordstrom’s generous return policy for the rest of us.

Alexandra Mondalek is a writer for Yahoo Style. Follow her on Twitter @amondalek.

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