Hardware Retailing The Industry's Source for Insights and Information
By Luke Vander Linden
Retail fraud has long been a threat to businesses, but fraudsters have never been able to go after so many different targets at once. New technologies like artificial intelligence (AI) and automation can help bad actors scale scams and make impersonation attempts more convincing, putting businesses at greater risk of financial loss and theft. And with e-commerce accounting for 16.4% of total U.S. retail sales in 2025, opportunities for fraud are increasingly expanding across channels.
Though large, national brands may seem like the most lucrative targets, no business is immune to modern fraud threats. In fact, small-scale retailers, such as independent home improvement stores, can be particularly alluring marks as they often carry easy-to-resell, high-value merchandise and operate with little to no dedicated fraud-prevention resources.
Here’s what small business owners should watch for to recognize fraud early, plus practical steps to build stronger defenses.
E-commerce made up 16.4% of total U.S. retail sales in 2025. That means nearly 1 in every 6 sales were made online in 2025, putting businesses at greater risk of financial loss.
Common Fraud Threats Facing Hardware Stores
There are many ways fraudsters can con hardware stores and other retailers out of money and merchandise, such as returning stolen goods, using fake receipts to claim refunds or sending back counterfeit merchandise for full-value refunds.
In 2025, the retail industry was projected to process $849.9 billion in merchandise returns, but not all those returns were legitimate with 9% classified as fraudulent.
Return fraud isn’t the only way bad actors can defraud small business owners. Payment card fraud and stolen card use remain persistent threats, too. According to The Federal Reserve’s Economic Well-Being of U.S. Households in 2025 report, 16% of U.S. adults reported experiencing credit card fraud.
Though retailers may not be the direct target when a customer’s card information is stolen, they can still feel the impact through lost merchandise or chargebacks when fraudulent purchases are reversed. Criminals can run similar plays with gift cards, either purchasing them with stolen information or physically tampering with the cards to steal card numbers and claim the balance after legitimate activation. Though many retailers have defenses in place to block suspicious transactions, some fraudsters can get around those protections by committing fraud through a known customer’s account. For example, by using stolen credentials to take over loyalty or other online accounts, bad actors can pose as legitimate shoppers to slip past security controls that rely on trusted account signals to assess fraud risk.
Fraud Warning Signs
Fraud tactics continue to evolve, but retailers do have one advantage: criminals tend to recycle approaches that work, regardless of industry. That means despite new technologies that increase the speed and scale of fraud, in many cases, the warning signs remain familiar.
Practical Steps to Prevent Fraud
With Multiple potential entry points to commit fraud, a small business’s defences must be similarly layered.
- Implement Strong POS and Payment Security Controls
Because point-of-sale (POS) systems touch nearly every transaction, they come with high potential for fraud and abuse. For example, outside attackers could use software vulnerabilities to gain unauthorized access, while staff working from the inside could abuse POS access to issue fake refunds. Keep POS software updated, restrict administrative access and require manager approval for high-risk actions, like large refunds or overrides. - Use Multi-Factor Authentication
All banking, email and other accounts that can authorize payments or expose sensitive information should be padlocked with multi-factor authentication (MFA). Requiring a verification code, authentication app, biometric check or other second factor in addition to a standard password makes it harder for fraudsters to gain access with just stolen credentials. - Require Verification for Refunds and Vendor Payment Changes
Whether fraudsters walk through the front door or work behind the scenes through a compromised account, they often try to move quickly, urging employees to bypass standard procedures or make exceptions to store policies. Provide clear instructions for processing refunds, authorizing vendor payment changes and handling unusual payment requests so employees aren’t left on their own to make judgment calls under pressure. An established, clear line of communication for employees to easily escalate suspicious activity is also recommended. - Regularly Review Transactions and Inventory Records
In the everyday store bustle, an unusual refund or missing item might slip by unnoticed, but looking at the numbers can reveal hints of a fraudster’s scheme. For example, multiple chargebacks for similar transactions or repeated high-value refunds tied to the same account could indicate a recurring issue and inform where additional controls may be needed.
The ABCs of BEC Scams
Every day, retailers may receive hundreds, if not thousands, of emails, invoices and payment requests. While these communications may seem standard, they present enticing opportunities for cybercriminals to impersonate trusted contacts, exploit relationships and redirect money or sensitive information.
BEC scams are designed to look run-of-the-mill and ordinary, so it helps to know the warning signs. These are three common scenarios hardware store owners should be prepared to spot.
Fake Supplier Invoice
An attacker spoofs a trusted vendor’s email and sends what looks like a routine invoice. The formatting, logo and tone match previous communications, but crucially, the bank account details have been changed. To reduce suspicion, the invoice may include a note that the supplier has “updated” their payment process. If the payment goes through, it’s the hacker who makes off with the funds.
Red flag to watch for: Be wary of sudden bank changes. Always verify requests using a trusted contact method like a phone call outside of email.
Executive Impersonation: An attacker poses as the store owner or manager and emails or calls an employee with an urgent payment request. These messages often arrive outside regular hours and lean into a sense of authority to create stress and pressure employees into processing payments fast without following typical approval protocols.
Red flag to watch for: Unusual timing and urgency from leadership should be concerning. Train employees to reject requests to bypass normal approval procedures, even when they appear to come from executives.
Customer Order Scam: An attacker pretends to be a customer placing a special order, and they even make a payment with a real credit card. But soon after, they request a refund—with the funds directed to a different account. What the employee doesn’t know is that the attacker has already “reported fraud” to their credit card company, who reverses the original charge, leaving the store covering the refund 100% out of pocket.
Red flag to watch for: Never send refunds to accounts that differ from the original payment method.
One of the most reliable indications of fraud is unusual behavior. For example, the average customer may buy a high-ticket item, like a power tool, once a year or so. But repeated purchases of the same high-value items within a short period could be a signal of foul play. Similarly, if one customer attempts to process several returns—all without furnishing a receipt—then it may indicate return policy abuse or an attempt to return stolen merchandise.
Bear in mind that bad actors seeking to defraud retailers don’t always pose as customers. Store owners should also watch out for suspicious vendor behavior. For instance, if a known supplier suddenly requests an invoice payment be sent to a new bank account, it’s worth investigating if the vendor’s email account was compromised. Be especially cautious if the supplier urgently presses employees to bypass standard verification procedures, writes from a new email address or uses unusual language or phrasing.
Building a Culture of Awareness
Though fraud may spike during the busy shopping seasons, it is a constant, around-the-clock threat, and bad actors are constantly leveling up their tactics to evade new defenses. Technology and security controls can help, but they cannot eliminate one of the most frequently exploited weak points: people. In fact, human involvement played a role in 60% of breaches in 2025.
For this reason, the best defense against fraud is ongoing, shared education.
Every employee, from cashiers to managers, should participate in fraud and security awareness training to understand how criminals operate, how to recognize suspicious activity and what steps to take when they suspect fraud. A single workshop during onboarding, however, isn’t enough. One study showed it took 12 months of security awareness training and simulated phishing for employee susceptibility to simulated phishing to fall by 86%. To stay resilient as fraud tactics evolve, schedule regular meetings to update staff on warning signs, new scams and suspicious behavior. Develop and update a fraud response plan with clear instructions on when to stop a transaction, what to document and whom to contact.
Most importantly, store owners should encourage employees to speak up when something looks unusual, even if they’re not certain it’s fraud. Real-world examples help teams understand the larger impact of missed warning signs, while open communication makes it easier for them to come forward when something looks amiss.
The Value of Industry Collaboration
Unfortunately, when bad actors have success defrauding one business, they’re likely to rinse and repeat the tactic elsewhere.
But if criminals can operate in numbers, store owners can, too. By working together to share threat intelligence, exchange best practices and participate in industry training and benchmarking, even small independent store owners can learn about emerging threats sooner, improve fraud training and collectively strengthen defenses across the industry.
Retailers can build these connections by communicating with industry peers or joining organizations like the Retail & Hospitality ISAC (RH-ISAC), the global, trusted cybersecurity community for retail- and hospitality-focused intelligence.
Retail fraud takes many forms, and bad actors don’t hesitate to go after small businesses with the same tactics they use on national chains. But by combining practical safeguards with continuing education, employee awareness and industry collaboration, retailers of any size can reduce exposure and bolster defenses for everyone.
