Ninth Annual Report From The Retail Equation Sheds Light On Growth In Return Fraud; Impact On Sales, Jobs And Shrink

Study Shows Merchandise Returns Account for Nearly $270B in Lost Sales; Ranking it Third on the Fortune 500 if it were a Company

The Retail Equation, the industry leader in retail transaction optimization solutions, recently released its 2013 Consumer Returns in the Retail Industry report, which analyzes results from the National Retail Federation’s annual survey on merchandise returns and the 2012 Canadian Retail Security Survey from The Retail Council of Canada (RCC) to provide insights for North American retailers to minimize the effect of return fraud and abuse on their business.

According to the NRF, merchandise returns in 2013 cost U.S. retailers more than $267B in lost sales. In fact, as a company, this would rank third on the Fortune 500 and higher than household names such as Chevron, General Motors and General Electric. Retail fraud and abuse accounted for $9.1B to $16.3B in the United States, an increase of 2.6 percent from last year.

“In the competitive world of retail, it is critical to understand how returns and return fraud reduce net sales and contribute to shrink – clear causes of lost profits,” said Mark Hammond, chairman and CEO of The Retail Equation. “The results within this report offer the industry’s best look at merchandise return policies and procedures, as well as potential fraud and abuse. This information can be used by loss prevention professionals to compare and contrast their own program results to those reported here, with an eye toward reducing losses.”

The extreme loss of profit has the potential to cause retailers to offset the negative business impact by raising prices and reducing costs, which often means a loss of jobs. Last year alone, return fraud cost retailers and workers between 331,000 and 595,000 jobs. And the cost to each state is steep. Retail revenue losses are costing states a total of $549M to $989B in lost sales taxes.

Using figures from the RCC, TRE estimates that annual merchandise return fraud and abuse accounted for $1.1 to $1.6B in the Canadian retail industry. Because of the significant retail revenue losses caused by return fraud and abuse, federal and provincial governments are losing a total of $144 to $205M in sales tax revenues and costing retailers and Canadian workers between 29,000 and 42,000 jobs.

In addition to the figures listed above, The Retail Equation’s report provided a number of key findings, including:

• Examples of Return Fraud—The report showed a 15 percent increase in employee collusion versus last year—from 80.7 percent to 93.1 percent. This implies that exception reporting systems are not sufficiently preventing this type of fraud.
• Impact of Return Fraud and Abuse vs. Shrink—It also revealed that retailers are putting more importance on the issue of return fraud during the past four years. There is growing evidence that return fraud and shrink are highly correlated and LP teams are beginning to pay close attention to this connection and find ways to reduce returns and return fraud.
• Analysis of Return Fraud by Receipt, Channel and Tender—Four out of five main tender types (e.g., cash, gift card/merchandise credit, credit card, debit card and check) showed increased fraud. In fact, fraud increases outpaced decreases by 42 percent.

Preventing fraud and abuse is a major challenge, but retailers are also looking to improve the shopping experience and differentiate the consumer experience during the return process. The ability to offer more flexible and lenient returns, while still mitigating the risk of fraud and abuse is critical.  The Retail Equation can help address such challenges through a return optimization solution called Verify-3. It is designed to distinguish and deter the one percent of consumers that are fraudulent and abusive, allowing the remaining good 99 percent to shop and return as usual.

For a complete copy of the report, please go to www.theretailequation.com/Retailers/IndustryReports.aspx.

About The Retail Equation
The Retail Equation, headquartered in Irvine, Calif., optimizes retailers’ revenue and margin by shaping behavior in every customer transaction. The company’s solutions use predictive analytics to turn each individual shopper visit into a more profitable experience. This yields immediate financial payback, increasing store comps by as much as two percent, with significant return on investment. The Software-as-a-Service applications operate in more than 27,000 stores in North America, supporting a diverse retail base of specialty apparel, footwear, hard goods, department, big box, auto parts and more.

To see complete results from the NRF survey or to learn more, visit www.nrf.com. For a copy of the 2012 Canadian Retail Security Survey, please contact the RCC at www.retailcouncil.org. Details on The Retail Equation’s return optimization solutions for retailers can be found at www.theretailequation.com.