Q. In preparing for the holiday season, I’m reviewing my return policy. How can I minimize return fraud or abuse?
A.Approximately 9 percent of all returns in the U.S. are fraudulent,
according to a study conducted jointly by KingRogers International and
The Return Exchange, a company that provides fraud and abuse detection
products to retailers (www.returnexchange.com).
David Speights and Mark Hilinski, senior researchers at The Return
Exchange, provided the following information about return fraud. They
warn about the following “red flags”—indications that
your store may be suffering measurable losses due to return fraud and
abuse:
• Your return rate has increased in two of the last three years.
• Average markdown rates following a return are increasing.
• The percentage of returned merchandise you are able to resell
has declined.
Speights and Hilinski advise retailers to review their store’s
return policy at least once a year, and suggest that most policies that
are more than three years old are in need of updating due to newer forms
of fraud.
In reviewing a return policy, they recommend not basing decisions on
intuition but on hard data about returns, including sales and markdown
rates of returned items. They add that staff should be trained on the
policy and expected to enforce the policy uniformly at all locations
and times.
A return policy need not be arbitrary with regard to customer loyalty,
however. Returns from loyal or regular customers may be referred to
the store owner or manager, for example.
The most common form of return fraud is “wardrobing” or “renting”:
a customer buys merchandise, uses it briefly and returns it as if it
is new. More than half of return fraud are of this type.
Other types of return fraud include receipt forgery, check fraud (returning
merchandise purchased with an illegitimate check before the check clears),
box stuffing and credit card return scams, such as returning stolen
merchandise and having it credited to cards that were not used to make
the purchase.
Employee fraud—return fraud that involves an employee’s help,
such as an employee providing receipt stock to a fraudster—was
found to be involved in 8.7 percent of all fraudulent returns.
Some retailers give store credit for merchandise returned without a receipt, but even store credit (such as gift cards) can be sold online, making it more valuable to thieves who can turn it into cash.
Do you have a retailing question? Ask the Michigan Retailers Association
by mail: 603 South Washington Avenue, Lansing, MI 48933;
by fax: 517.372.1303;
by e-mail: mra@retailers.com.
