News | January 18, 2012

Return Fraud Reached Its Highest Level In 2011 Costing Retailers Millions Of Dollars And Hundreds Of Thousands Of Jobs

The Retail Equation, the industry leader in retail transaction optimization solutions, today released its 2011 Consumer Returns in the Retail Industry report, which analyzes results from the National Retail Federation's annual survey on merchandise returns and provides insights for retailers to minimize the effect of return fraud and abuse on their business.

"In the competitive world of retail, it is critical to understand how returns and return fraud impact customer service, reduce net sales, and contribute to inventory shortage – clear causes of lost profits," said Mark Hammond, chairman and CEO of The Retail Equation. "This report is intended to offer keen insights into merchandise return policies and procedures, as well as potential fraud and abuse. It is designed to help loss prevention professionals compare and contrast their own results against their peers with the intention of reducing losses."

According to the NRF, retail fraud and abuse rose to an estimated $14.3 to $18.4 billion in 2011 — the highest ever reported. This rise is causing retailers to offset the negative business impact by raising prices and reducing costs. Last year alone, return fraud cost retailers and workers between 524,000 and 673,000 jobs. And the cost to each state is steep also. Retail revenue losses are costing states a total of $870 million to $1.1 billion in lost sales taxes.

Return abusers continue to look to receipts as an easy way to make fraudulent returns. Forged receipts rose nearly nine percent over 2010 and non-receipted returns also increased. E-receipts are creating yet another challenge and may render receipt-based return authorization systems even more vulnerable.

"The survey results indicate the presence of a receipt causes retailers to consider a return valid," added Hammond. "Proceed cautiously, as there are many instances where systems and policies are being abused by shoppers with seemingly valid receipts."

Preventing fraud and abuse is a major challenge, but retailers are also looking to improve the shopping experience and differentiate the consumer experience during the return process. The ability to offer more flexible and lenient returns, while still mitigating the risk of fraud and abuse is critical.

Such challenges can be addressed through a return optimization solution called Verify-2™. It is designed to distinguish and deter the one percent of consumers that are fraudulent and abusive, allowing the remaining good 99 percent to shop and return as usual.

The Retail Equation's report draws several conclusions: Shrink will always be a key metric and has been a large focus for LP teams. Return fraud and shrink are correlated, but return fraud has many independent facets too. The growing identification of return fraud as a separate and important issue to be addressed indicates there is a demand for improvement, which is represented by increased focus on systems and programs.

For a complete copy of the report, please go to www.theretailequation.com/Retailers/IndustryReports.aspx.

About The Retail Equation
The Retail Equation, headquartered in Irvine, Calif., optimizes retailers' revenue and margin by shaping behavior in every customer transaction. The company's solutions use predictive analytics to turn each individual shopper's purchase or return into a more profitable experience. This yields immediate financial payback, increasing store comps by as much as two percent, with significant return on investment. The Software-as-a-Service applications operate in more than 17,000 stores in North America, supporting a diverse retail base of specialty apparel, footwear, hard goods, department, big box, auto parts and more.

To see complete results from the NRF survey or to learn more, visit http://www.lpinformation.com/return-fraud. Details on The Retail Equation's return optimization solutions for retailers can be found at www.theretailequation.com.

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