With so many options for places and ways to shop, consumers expect lax return and exchange policies. If a store doesn't offer a flexible return policy, the consumer will move on to the next option.

The issue for retailers is that flexible return policies often cause a loss for the retailer. However, is the cost of a flexible return policy more beneficial than losing consumers to no-return policy, or a strict one? How do you implement a quality return policy while still reducing risk?

For example, Zappos.com offers hassle-free returns within 365 days of purchase for unused items. Why doesn't every establishment offer such carefree return policies?

According to the National Retail Federation report "2013 Consumer Returns in the Retail Industry," the estimated amount of fraudulent returns was $8.8 billion in 2012. In 2013, that number jumped to $9.1 billion, a 2.6 percent increase.

The report also included that there were significant variations on lost sales tax revenue by states because of fraudulent returns. Texas, California and Florida were the three hardest hit in regards to lost sales-tax revenue, each of them with over $50 million in losses.

There are many forms of return fraud causing a plethora of ways to combat the problem. How do you chose which policies will best suit your retail establishment? First, you have to determine which types of return fraud your establishment suffers from the most.

Types of return fraud

After-sale return: One type of return fraud occurs when the consumer loses the receipt of an item purchased during a sale. The consumer then returns the item after the sale has ended, but does not inform the sales rep that the item was purchased during the sale. The consumer is then given a higher amount for the item than she originally paid.

Wardrobing: Have you ever heard of "renting" items, or wardrobing? This is when the consumer purchases an item with full intention of returning the item at a later time — after using it. For example, a consumer has a fancy dinner party to attend and wants to look fabulous. She finds the perfect dress — for $600 more than what she has to spend. She purchases the dress anyway and decides to be extra-cautious during the evening party and then return it the following day.

Check fraud: Check fraud is purchasing an item with a known bad check. The consumer then returns the item before the check has had time to clear.

Stolen returns: Consumers will steal an item and then return it at a later time. Sometimes they will even walk straight to the return counter.

Fraudulent receipts: Fraudulent receipts can be used to return items at locations with a policy that requires a receipt for a cash refund. Fraudulent receipts can be found online or even in the trash cans at the establishments. The fraudster then finds the items on the receipt and takes them to the return counter with the receipt.

Organized retail crime: These are networks that have an extensive knowledge of the industry. They purchase large amounts of high-priced items. These groups can also be violent, so they can cause security and safety issues as well. Based on the NRF's ninth-annual Organized Retail Crime Survey, 94 percent of retailers surveyed said they had been a victim of organized retail crime within the past year.

Internal fraud: Internal fraud occurs when employees are committing the fraudulent returns or are a part of the scheme. This is often difficult to detect because the employee becomes familiar with the return policies and procedures, and organizes a way around the policies.

Addressing and preventing fraud

When addressing and preventing fraud in retail establishments, the goal is always the same: Reduce return fraud to reduce company loss.

It is most effective to target the specific types of fraud your establishment most often encounters. If your establishment has a high rate of internal fraud, you should target that type of fraud, not fraudulent receipts.

How to fight fraud:

    1. Many establishments implement store-level authorizations where store employees are responsible for interpreting and applying the individual store policies. This way the employee can make the final decision as to whether the return will be completed. The success of this type of fraud defense is determined by the employee.

    2. No refund without a receipt is a typical return policy today. However, this policy is not as effective as many would hope. With fraudulent receipts, this makes no sense. Organized retail crime typically involves fraudulent receipts, so this would make no difference in these large-scale scams.

    3. Anti-RFA technologies are computerized systems that identify bad returners. These technologies analyze data to determine whether a consumer should be allowed the return. The technology is even beginning to determine an abusive returner with receipts.

    4. Exception-based reporting is a system that is connected to your establishment's POS systems, or registers. It analyzes the employees' patterns and alerts you to any fraudulent behavior. This type of system is extremely helpful in stopping and preventing internal fraud.

    5. Many companies are now offering the option to legally rent clothing or other items. For example, Le Tote is a California-based company that delivers full outfits to your house for a monthly fee. And, Rent the Runway lets you rent designer outfits for a fraction of the cost. You might not be able to offer a similar service, but you could promote the idea throughout the establishment.

    6. A timeframe for returns reduces fraudulent returns. Make the timeframe short enough to where it limits the abilities of fraudsters but long enough to satisfy loyal consumers.

Tips for an effective return policy

Return policies should always be available to the consumer. Posting your return policy in the store is always a safe way to ensure the consumer knows the policy. Many retailers also place the return policy directly on the receipt.

When creating an effective return policy, there are two tips that will make you stand out:

    1. Use appropriate language for the consumer. Make sure the message is clear, using consumer-focused language. Don't try to confuse the consumer. Make the statement friendly. Enhance the positive, don't focus on the negative.

    2. Create a unique message for your establishment. Don't use the typical return policy you found online. Create a personalized message for your consumers.

Take the blame when it's your fault

One major issue is with improperly shipped goods. Many times, the retailer will ship the wrong item. Then, the cost and problem is all on the retailer. Make sure your return policy takes into consideration employee faults.

One way to stop this is by implementing stricter regulations for preshipping. Make sure there are steps taken before all items are shipped to ensure it is the right item.

Consumers are demanding more from return policies than they were in the past. They are expecting a flexible return policy. However, with the rate of fraud and abuse in the retail industry intensifying, retailers must come up with the best ways of tracking fraudulent behavior.

Use the data you have, research and investigate the return problems your retail establishment faces. If you have a good understanding of where your problem lies, you have a better chance of creating a successful return policy.