Return Fraud & Abuse Costs Retailers More Than $15.5B

The Loss Prevention Research Council, in conjunction with The Retail Equation, recently announced the results of this year's "Customer Returns in the Retail Industry" survey. The survey, which The Retail Equation began conducting in 2003, is designed to provide information to retailers to improve their consumer returns business processes and provide an estimate of the amount of return fraud experienced within the retail market.

Using 2007 retail data and 2008 survey results, the study revealed that return fraud and abuse is a $15.5B problem. It also showed that retailers are increasingly trying to reduce the cost of fraudulent returns. The survey found that nearly 70 percent of the respondents specified that it is an important issue to their company, and the majority of retailers – 64 percent – report that focusing on reducing refund fraud is a high priority. However, there is clearly a performance gap because two-thirds of retailers believe that their current return policies and systems are "ineffective" or only "somewhat" effective in deterring return fraud and abuse. That indicates that there is still much room for improvement on the issue.

"The results of this survey are consistent with the research we have conducted to help develop our return fraud and abuse applications," said Mark Hammond, chairman and CEO of The Retail Equation. "Return fraud is a significant problem and retailers are increasingly looking for ways to combat this fraud through technological solutions."

A majority of retailers' current processes and systems for reducing return fraud appear to focus more on non-receipted return situations, but the survey highlights a warning with well over half finding forged receipts used to commit return fraud. This points out a growing trend and should result in closer attention being paid to retailers' increasing vulnerability to fraud on receipted returns.

The survey also indicated that there is a growing movement – across all four surveys – toward use of automated return authorization systems. These technological solutions can be found in thousands of stores in hundreds of malls across the country, and save retailers an estimated $200 million or more annually.

According to Dr. Read Hayes, director of Loss Prevention Research Council, "A retailer's approach to managing returns is largely keyed on tracking customers, and some high-risk products, while acting on consumers' purchase and return histories. Implementing the right technology, combined with employee training that encourages diligent attention to the issue at the store level, will result in decreased return fraud and abuse, as well as increased net sales, higher profits and improved customer satisfaction."

About The Retail Equation
The Retail Equation, headquartered in Irvine, Calif., is the industry leader in retail transaction optimization solutions. The company's applications use statistical modeling and analytics to predict consumer behavior, and its software-as-a-service delivery enables retailers to achieve significant and measurable return-on-investment. Its solutions are operating in over 12,000 stores in North America, supporting a diverse retail base of specialty, department, sporting goods, auto parts and more. The Return Rewards solution creates sizeable incremental sales at the return counter, while also building customer loyalty. Both Verify-1 and Receipt Verification prevent fraudulent and abusive returns, reducing return rates and saving millions of dollars annually for retailers. For more information, visit www.theretailequation.com.

About Loss Prevention Research Council
The Loss Prevention Research Council (LPRC) was founded in 2001 by leading retailers in an effort to support the fact-based needs of the Loss Prevention industry. LPRC is incorporated as an independent organization, designed to provide objective, science-based information, analyses, training, expert testimony and other solutions to its members and the industry. The organization's research scientists develop crime and loss control solutions, conducting over 45 real-world loss prevention research projects to date. For more information, visit www.lpresearch.org.

SOURCE: The Loss Prevention Research Council