One person may buy a dress, wear it once and then return it. Another may use fake receipts to “return” stolen items. For retailers, the result is the same: lost profits – a projected $9.6 billion this year, and $3.5 billion this holiday season alone, the National Retail Federation says.
The trade group polled executives at 90 retail companies last month and found that return fraud is so widespread, 69 percent had changed their return policies to protect themselves and 25 percent planned to tighten their policies more this season.
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“Retailers have often viewed lenient return policies as a cost of doing business with honest shoppers,” said Joseph LaRocca, vice president of loss prevention for the federation, in a news release. “Unfortunately, due to an increase in return fraud, retailers are being forced to strike a delicate balance between servicing loyal shoppers and discouraging opportunistic criminals.”
According to the survey, the most common form of return fraud is the return of stolen merchandise, which 95 percent of retailers said they’d experienced in the past year.
In addition, 69 percent of retailers said they had been plagued by returns of merchandise that was originally bought with fraudulent or counterfeit tender, and 52 percent reported getting returns with counterfeit receipts.
Another common practice, the survey found, is “wardrobing” – returning an item that has been used but is not defective, whether it’s an evening dress or a laptop computer. Such items often can’t be resold at face value, the federation said, so retailers have to discard them or sell them at a heavy discount.
Retailers are under particular pressure to fend off fraud – but also, to please their customers – around the holiday season, when the survey found the return rate typically rises from an average of 7.3 percent to 8.8 percent.
According to The Return Exchange – a California-based software company contracted by retailers to gather return information, store it securely, and analyze the data to develop return policies – the best way to strike a good balance is to use technology.
The company’s Verify-1 Return Authorization System, which is used by major retailers nationwide, tracks how frequently customers make returns and the cost of those items. It is said to be effective because it can weed out the estimated 1 percent of customers who make fraudulent returns without penalizing honest customers by adopting difficult return policies.
The Return Exchange also has a product that can help verify receipts, making it easier for stores to reject returns that are being made with a questionable, duplicate or over-used receipt.
Though the company would not release exact numbers of clients using its software, spokeswoman Beth J. Passarella said it’s likely that “at least one store in every mall” is using it. Each store employing the software can use it differently, however, to set benchmarks for the level of returns – in number or cost – that should be allowed in a designated time frame.
But the Privacy Rights Clearinghouse, a California-based nonprofit consumer group, takes issue with the whole idea.
The group’s Web site says retailers such as Express, KayBee Toys, The Sports Authority, Staples, Guess stores and others are using The Return Exchange, and it expresses concern that consumers “may be denied the ability to make a legitimate return” if the system flags them for having returned items.
Mark Hilinski, senior vice president of sales and marketing for The Return Exchange, said in a news release that the company’s software actually benefits consumers.
“Our system optimizes net sales, reduces the return rate, and reduces shrink,” Hilinski said. “It can also reduce internal employee theft and shoplifting. The end result is that retailers don’t have to raise prices, which is better for consumers.”
Last year, the National Retail Federation launched its own database aimed at reducing return fraud. The Retail Loss Prevention Intelligence Network the federation created is described as “a secure, Web-based computer database that will allow retailers to share information with each other and with law enforcement.”
The program – designed with the help of retailers and experts in law enforcement, data privacy and technology – will track and report major crime incidents, allowing retailers to share information with law enforcement agencies nationwide.
“Organized theft rings have been able to operate under the radar of law enforcement for far too long because there has never been a shared library of information on retail crime,” said the retail federation’s LaRocca. “Through RLPIN, law enforcement and other retailers will be able to identify crime trends, which will help reveal crime patterns and will ultimately reduce retail losses.”
