Revisiting return policies: Tighter controls could deter fraud

As the holiday season kicks off, retailers not only should freshen up their merchandise and displays but also cast an eye at return policies. With return fraud costing retailers $2.7 billion during the holidays, stricter protocols could end up saving you money.
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With the kick-off of the holiday shopping season approaching, retailers not only should freshen up their merchandise and displays but also cast an eye at return policies.

A new survey from the National Retail Federation shows that retailers of all kinds have been slowly clamping down on policies and, in return, have seen a drop in losses.

Released in late October, the NRF’s fourthannual Return Fraud Survey found that changes in return policies have helped companies see improvements in some areas -- great news as the shopping season nears and at a time when many consumers are still a little nervous about the overall economy. In fact, two-thirds of 134 retail companies surveyed said their company’s return policies have changed to fight fraud.

Still, losses remain heavy. Return fraud will cost the retail industry an estimated $2.7 billion this holiday season and an estimated $9.6 billion this year. Still, that’s down more than 17 percent from $3.32 billion a year earlier, reported the NRF (www.nrf.com).

“The changes that retailers have made over the last two years are starting to take hold,” Joe LaRocca, NRF’s senior asset protection advisor, told SNEWS®.

What to do -- now

To fight return fraud, NRF advises retailers to set clear policies and share them with customers. LaRocca offered these guidelines:

  • Have a clear policy
  • Make sure customers know the policy
  • Display the policy in the store
  • Set short time limits
  • Require receipts
  • Give gift receipts
  • Stick to your rules

“First and most important is to make sure customers understand the returns policy,” LaRocca told SNEWS. “Display your return policy on a sign at the registers. Or make it clear on the receipt.”

He suggests setting time limits and informing customers about them. “Education of the customers is very important up front,” he said.

Many stores require receipts and a number set up database programs to track problem returners -- those serial returners who are gaming the system. Some smaller retailers keep paper-based systems for tracking problem returners, while chains use analytics-driven software applications.

“People who are ‘wardrobing’ and doing fraudulent returns are almost always taking the best products -- the most popular colors, designs and the hottest sellers,” LaRocca said. “That creates another problem -- product availability.”

Wardrobing -- the practice of buying clothes or other goods for one-time special use, then returning them -- dropped from 64.2 percent a year earlier to 46.2 percent.

Gift receipts help defeat the defrauders, LaRocca said. They show proof of purchase, allow the customer to get refunded full price, and allow the store to account for the merchandise quickly, LaRocca said. Retailers reported the use of counterfeit receipts was also down some -- from 45.7 percent reporting it a year ago to 43.1 percent this year.

Changes this year?

Most retailers are not dramatically changing their stances from last year. Four of five will keep the same return policy, while 16.9 percent of companies said their return policy will tighten, the NRF survey said. About 4 percent said they will loosen their policies. About one-third said they would be more flexible during the holidays. But that doesn’t mean a change may not be in order if you haven’t revisited your policies recently.

Return policies can be a delicate issue, especially around the hectic holiday shopping season. They have to strike a balance between helping honest customers and keeping scam artists at bay. Retailers don’t want to turn away valued customers with unreasonable rules. After all, most returns are legit, but the scam artists keep scheming up new rip offs.

Retail loss prevention experts say clear and direct return guidelines work best. For example, the policies at Massey’s Professional Outfitters in New Orleans epitomize simple and direct. To wit: All returns require store receipts. Goods returned within 30 days get a full refund. After 30, it’s store credit, store manager Blake Gill told SNEWS.

“We have to take steps to prevent fraud,” Gill said. “People have tried to bring back merchandise that we didn’t sell them.” One would-be crook tried to return an item with a security tag on it, but Massey’s doesn’t use security tags. No refund for that bum.

“We let our customers know they have to have receipts, and we follow that strictly,” Gill said. Massey’s sells gear for skiing, surfing, outdoors, snowboarding and adventure travel.

Of course, some companies and industries are more affected by return fraud than others. Apparently, not too many crooks are “wardrobing” treadmills, elliptical trainers, or even weight gloves or rubber tubing, then trying to bring them back to the store, claiming they are new.

“It’s not an issue for the fitness industry,” David Kutler said in response to an email question from SNEWS. Kutler has been president and owner for Body Basic Fitness Equipment in Omaha, Neb., for nearly 25 years.

Distinguishing policies

One company that has tried to distinguish itself with favorable return policies is REI. Its return policy is 100-percent satisfaction guarantee for products purchased at the co-op. It has not been amended in any way in recent years, said Megan Behrbaum, REI public affairs manager.

“Our guarantee strengthens our relationship with our members and customers,” Behrbaum told SNEWS. “We also believe our guarantee sets us apart from other retailers. Many of our customers have told us that our return policy is the main reason they shop with us.”

REI does not enforce a time limit on returns and receipts are not mandatory because members’ transactions can be easily looked up, Behrbaum said. 

“As part of our return policy, we accept used items and have a seamless process in our stores and through direct sales,” she added. “If a customer is not satisfied with their item, we will replace, return or work with them at their request. We also welcome return items purchased on our website in the local store and vice versa.”

Return fraud in the online world is another kettle of fish, according to the NRF’s LaRocca. Most often, it involves crooks using stolen credit cards or other fraudulent means to buy merchandise, then trying to return it to physical stores.

“Retail fraud morphs into different sizes and shapes,” LaRocca told SNEWS. “As retailers implement new systems and build better mousetraps, people who are taking advantage of stores try to find a way through them.”

Read the NRF’s entire survey results by clicking here.

--Stuart Glascock

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