A Proactive Approach to Fighting Returns Fraud and Abuse

It's no secret that retail sales are down; however, what many retailers don't realize is that the rise in fraudulent and abusive returns is a contributing factor, costing them millions in profits. In fact, according to the National Retail Federation (NRF), returns and exchanges increased almost 20% over the past year. More and more, desperate consumers are using returns as 'the new cash' creating a devastating effect on unwary retailers.

Return fraud can take many forms. For example, with 'wardrobing,' customers buy merchandise for short-term use with the intent of returning it after they have used it. Dresses for special occasions, video cameras for weddings, or big-screen TVs for a Super Bowl game are some of the most commonly 'wardrobed' items. Receipt fraud is another common form of fraud, in which customers use falsified, stolen or reused receipts to return merchandise. (Did you know that there even a Web site where a shopper can order and print false receipts?) Others simply shoplift the items in question and return stolen merchandise for the full retail price. Price switching, in which customers put a lower-priced tag on merchandise with the intent of returning it for full retail price; and price arbitrage, in which customers buy similar-looking but differently-priced merchandise and then return the cheaper one at the more expensive price, are also examples of fraud and abuse. Lastly, employee fraud is a serious problem for many retailers, whose employees assist customers in returning stolen goods for full refund price in order to get a piece of the action.

Retailers must be proactive if they are to protect themselves from fraud and abuse. This includes implementing a variety of approaches for fraud prevention, including:

Proper Training - Work with staff to properly train them on company return policies and to follow up that they are utilizing those guidelines. This includes warning employees of the ramifications if caught processing fraudulent returns.

Utilizing Technology - Implement return authorization programs such as Verify-1 to prevent fraudulent return activity, take the subjective nature out of the return process and protect customers' privacy.

Adequate Staffing - Provide proper staffing to increase positive interactions with customers as well as to deter fraud.

Education - Remain updated on the latest fraud trends and work closely with staff to employ prevention strategies.

Learning from Peers - Join a retail trade association like NRF or RILA and leverage the loss prevention expertise of your peers.

Today's economy is bringing out the best and the worst in people, causing businesses to become more innovative and to look for cost-effective ways to meet their customers' needs while increasing their profits. Unfortunately, it is also causing some consumers to resort to illegal means to make a quick buck and to get things they did not pay for. While many retailers recognize the importance of dealing with fraudulent and abusive returns, they must fully understand the effect these returns can have on their bottom line. However, smart businesses today understand that a penny saved is quite literally a penny earned; and they are taking proactive steps to thwart fraud before it occurs.

Tom Rittman is vice president of marketing for The Retail Equation. 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. For more information, visit