Magazine Article | July 18, 2007

Prevent Return Fraud, Save Millions

Source: Innovative Retail Technologies

It is possible (and necessary) to drastically reduce your store’s fraud claims without alienating your loyal shoppers.

Integrated Solutions For Retailers, August 2007

There are more honest customers in your stores than dishonest ones. Perhaps most thankful for this fact are store personnel who must strike a delicate balance between servicing loyal customers and discouraging opportunistic criminals. Innovative retailers are approaching this important business issue through a mix of technology and business processes.

The sheer cost of fraudulent returns, estimated at $9.6 billion annually in a National Retail Federation 2006 report, reflects the widespread nature of the problem. The problem for retailers is threefold. The rise of fraudulent returns significantly impacts revenues and distorts inventory. It also strains the relationship between store personnel and customers. An overwhelming number of retailers say that attempting to stop theft can be more harmful than the original crime.

When stringent returns policies are combined with inadequate systems, good customers think twice before returning to the store, vowing to avoid future scrutiny. In fact, 85% of consumers will shop elsewhere if faced with an inconvenient or difficult returns process, according to a recent Harris Interactive survey.

From our experience working with leading retail businesses, we have identified several best practices for taking a more detailed approach to develop and implement a true returns management system. Here are several things that a returns management system must do.

1: Make Sure The Returns Management System Is Consistent With Your Brand
Your returns management system must provide cashiers all the information they need to efficiently process a return without confrontation. And when determined necessary, store personnel should be empowered to override the system's recommendation and make an exception. For example, a serial returner is not necessarily a fraudulent one. Your returns management system must allow you to distinguish between the two. If a good customer has a legitimate return declined, that customer is likely to find a new place to shop.

2: Be Proactive In Preventing Fraud At The Point Of Return
Relying on postreturn analysis leaves retailers falling short of the goal of reducing loss to increase profit. The ability to retrieve the original purchase details helps guard against receipted return fraud. It ensures that the right price and right quantities are returned, that the refund is issued to the correct customer, and that the tender refunded is consistent with company returns policy, even when the original transaction contained multiple tenders or gift items.

3: Enable Cross-Channel Returns And Speed Things Up
Numerous studies have shown cross-channel customers are significantly more profitable than single-channel shoppers. However, according to a LakeWest Group survey, only a little more than 50% of all retailers offer a consistent cross-channel returns policy. To stay competitive, retailers must provide real-time access to cross-store, cross-channel transactions. The information on any store or cross-channel return should enable the store to speed the transaction, encouraging customers to shop again. Having a consistent view of returns information in real time across channels can also reduce opportunities for fraud by preventing multiple returns against the same receipt.

An effective returns management system solves a retailer's dilemma of reducing the growing threat of return fraud without alienating customers. It improves net sales, gross margins, and cash flow, and results in more accurate inventory and commission payments.