Not to go all Scrooge…but we had to follow-up yesterday’s post on things that cause losses and leaks in business profits with another big one—and one that’s right around the corner.
It’s return fraud, and according to a National Retail Federation (NRF) survey, it will cost retailers an estimated $2.9 billion during this holiday season alone. The estimated return fraud loss for the year is estimated to be a whopping $8.9 billion.
Every year, return fraud is perpetuated on retailers of all shapes and sizes by criminals in increasingly sophisticated ways that include returning stolen merchandise, using counterfeit receipts and even returning used or worn items. Loss prevention professionals at 60 retailers, responding to the 2012 NRF Return Fraud Survey, estimate that 4.6 percent of holiday returns are fraudulent.
Companies acknowledge that the policies and measures they are forced to put in place to detect and combat return fraud, like restrictive return policies, often penalize their customers. Almost all (96.5 percent) of retailers polled said that in the past year, they’ve received returns of stolen merchandise, and nearly as many (84.2 percent) said they’ve received returns that were purchased fraudulently or stolen.
A growing issue, they say, is ‘wardrobing,’ returning warn or used items like clothing or electronics, and roughly two-thirds of respondents experienced this in the past year. Another big problem: employees committing return fraud or colluding with others to do it. Eighty percent of retailers surveyed have had this problem this year.
The popularity of e-tailing and e-receipts presents new problems, since the majority of retailers let customers return online purchases in stores. Of these returns, nearly 4 percent are believed to be fraudulent—and growing.
It’s obvious that this puts retailers in a total lose-lose position. Customers want more and more liberal return policies, and many retailers have tried to accommodate that. But if doing so means opening the door to escalating losses from return fraud, companies have no choice but to tighten their return policies.
In Time.com’s ‘Business and Money’ column, Golden Gate psychology professor Kit Yarrow, a consumer behavior specialist, writes about how important it is for retailers to have good return policies—for just some of these reasons.
The small business subset of retailers feels any loss even more acutely, and potential losses from return fraud present an even bigger dilemma, perhaps, for small businesses. Smaller businesses traditionally have more limited return policies—many giving only store credit for returned items, even with the receipt. Despite the many appealing features of smaller retailers, their return policies rank right up there in the list of consumer complaints. So while there is considerable customer pressure to ease return policies, how do small businesses resolve the trade-off of customer loyalty in return for potentially higher losses?
The best things for any retailer to do, but especially smaller retailers, include making sure your return policy is clearly stated in writing and visible in the store. This may not be customers’ ideal in terms of returns. But they are more likely to accept it if everything else like customer service is outstanding.
