November 9, 2007
‘Tis the Season to Cheat Retailers
According to the National Retail Federation’s (NRF) second annual Return Fraud Survey, stores can expect to get lots of returns following the Christmas holiday and many of those will be made with the aim of cheating retailers.
Industry loss prevention executives estimate that nearly nine percent of all returns this season will be fraudulent. Despite the retail industry’s attempts to combat this type of activity, the number for this year is actually up slightly from last year’s 8.67 percent rate.
The study identified common attempts to defraud merchants. According to the executives who participated in the study, 92 percent have had people attempt to return stolen merchandise, 83.1 percent said returns are attempted by people who originally purchased an item with stolen tender, and roughly half used counterfeit receipts.
Another common attempt to cheat retailers comes in the practice of “wardrobing” where someone purchases a product, wears it and then returns it to the store for a refund. The practice, according to the NRF study, is on the rise with 66.1 percent claiming to have been victimized this year compared to 56 percent in 2006.
Despite the clear risk of being cheated, 35 percent of retailers said they plan to be more lenient when it comes to accepting holiday returns.
“Many retailers offer more lenient return policies during the holiday season to accommodate honest customers,” said Joseph LaRocca, vice president of loss prevention for the NRF, in a press release. “But unfortunately, retailers must constantly balance the desire to take care of their customers with the undisputed fact that criminals are constantly looking to take advantage of return policies.”
Discussion Questions: Do you see fraudulent returns being more prevalent in certain retail channels compared to others? What steps do you see as being most effective in catching those trying to cheat retailers through bogus returns?
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All in all–although the holiday season brings in the largest amount of revenue for retailers in comparison to any other season during the year, it’s covered in land mines!
Shrink due to error, employee theft (the risk runs higher with seasonal hires), and fraudulent returns represent just a few of these land mines. Although the fraudulent returns constitute an excessive loss on the part of the retail industry as a whole, retailers need to promote the customer perception that they are somewhat lenient. Customer lifetime walk costs are much more expensive comparative to fraudulent returns.
As a leading national manufacturer of point of sale papers, we have seen this evolving for years. Consequently, the demand for preprinted receipt paper with security features is exploding. I tell my clients, “If they can counterfeit a $20.00 bill, they can certainly counterfeit a unsecured receipt.” Clearly, this is not the total fix to the problem but rather a huge step towards developing a total security program.
Retailers should also establish a policy of absolutely no returns on clearance merchandise, especially in clothing.
There are threads on eBay forums suggesting people to buy clearance merchandise to resell on eBay, then return it if it doesn’t sell. I would bet this is abused as much as purchasing articles of clothing to wear once.
I do worry sometimes where all of this is going to end. Fraud minded “customers” take advantage of holes in retail store security or return policies to the store’s financial detriment. Stores impose measures, sometimes almost draconian, to combat this type of theft and shrinkage. These policies also affect the “good” customers by limiting their options and can make them feel like suspects rather valued guests, causing resentment to store management and lessening shopping enjoyment. This, obviously, can ALSO result in financial detriment to the store through lost sales.
For a while now, upscale stores such as Saks put special tags on party dresses. The tags explain that the dresses may only be returned if the tags are still attached. This discourages women from wearing the dresses to parties and then returning them to Saks. Of course, someone could throw a Minnie Pearl theme party, and then what would Saks do?
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All in all–although the holiday season brings in the largest amount of revenue for retailers in comparison to any other season during the year, it’s covered in land mines!
Shrink due to error, employee theft (the risk runs higher with seasonal hires), and fraudulent returns represent just a few of these land mines. Although the fraudulent returns constitute an excessive loss on the part of the retail industry as a whole, retailers need to promote the customer perception that they are somewhat lenient. Customer lifetime walk costs are much more expensive comparative to fraudulent returns.
As a leading national manufacturer of point of sale papers, we have seen this evolving for years. Consequently, the demand for preprinted receipt paper with security features is exploding. I tell my clients, “If they can counterfeit a $20.00 bill, they can certainly counterfeit a unsecured receipt.” Clearly, this is not the total fix to the problem but rather a huge step towards developing a total security program.
Retailers should also establish a policy of absolutely no returns on clearance merchandise, especially in clothing.
There are threads on eBay forums suggesting people to buy clearance merchandise to resell on eBay, then return it if it doesn’t sell. I would bet this is abused as much as purchasing articles of clothing to wear once.
I do worry sometimes where all of this is going to end. Fraud minded “customers” take advantage of holes in retail store security or return policies to the store’s financial detriment. Stores impose measures, sometimes almost draconian, to combat this type of theft and shrinkage. These policies also affect the “good” customers by limiting their options and can make them feel like suspects rather valued guests, causing resentment to store management and lessening shopping enjoyment. This, obviously, can ALSO result in financial detriment to the store through lost sales.
For a while now, upscale stores such as Saks put special tags on party dresses. The tags explain that the dresses may only be returned if the tags are still attached. This discourages women from wearing the dresses to parties and then returning them to Saks. Of course, someone could throw a Minnie Pearl theme party, and then what would Saks do?