Saturday, November 26, 2011

Return Fraud in the Retail Industry

Analysts are predicting a good year for retail sales, already we saw a good kick off to the Black Friday with retailers opening stores early thereby increasing sales.

We all know after a big sales day we immediately see a lot of people in the returns line. According to National Retail Federation (NRF) annual return fraud survey of 103 retailers, this year customer returns in the retail industry will see $217 billions in return, a jump of 15% compared to last year. Out of this $46.28 billion of it will be the holiday merchandise returns. This amounts to 8.92% average sales return and 9.94% average holiday sales return.

So how much of its fraud? NRF estimates retailers will lose an estimated $3.48 billion to return fraud this holiday season, down from $3.73 billion last year. Annual return fraud will cost retailers an estimated $14.37 billion in 2011, up slightly from $13.66 billion in 2010.

What constitutes a fraud and what's the impact on retailers? Return of stolen merchandise and employee return fraud or collusion with external sources affect 89.1% of the retailers. Return of merchandise purchased on fraudulent or stolen tender comes next with 81.2%. Wardrobing, that is, the return of used, non-defective merchandise like special occasion apparel and certain electronics affects 61.2% of retailers while 38.6% retailers have found criminals using counterfeit receipts to return merchandise.

So how are retailers countering return fraud? Most retailers as you may have experienced when making returns require identification. The survey found significantly less fraudulent returns when a receipt is present 2.89% as compared to 14.02% without a receipt. Therefore 62.1% of retailers now require customers returning items without a receipt to show identification while only 10.7% of retailers require customers making returns with a receipt to show identification.

Retailers have to walk a fine line when preventing return fraud as this could be perceived by customers as a hassle in their overall shopping experience. Companies have often used "hassle-free" returns as a competitive differentiator so ability to have more flexible and lenient return policy while reducing fraud is critical.

No comments:

Post a Comment