From November 2007

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Blame the system
Alford makes a similar point. “There is a huge benefit because you can manage a returns program without getting into a shouting match with your customers,” he says. “It still sometimes puts the retailer into a negative position relative to a customer -- but the retailer can always blame the system.”

Mike Keenan, director of LP for Hayward, Calif.-based Mervyns, recently completed the implementation of a returns management system. He was sold on the concept due to his experiences while working for another retailer.

“We reduced returns by approximately $20 million,” he says. “It drove the people who did nothing but fraudulent returns right out of our stores.”
Returns management systems vary, but basically use either the original sales transaction history (stored in a central database) or statistical modeling to determine whether a return is potentially fraudulent.

Tom Rittman, vice president of marketing for The Return Exchange, says his company uses Verify-1 to model against a database of customer return histories.

“When someone comes up to make a return, the store associate will ask to scan their ID to identify them to the system,” Rittman says. “We use that information to create and track that customer’s returns history.

Depending on the rules established by the retailer, The Return Exchange will respond to the cashier with an approval, a warning (which says they can process this return, but no additional returns with this customer for a fixed period of time) or a denial.

On average, retailers using The Return Exchange system experience a reduction of 6 to 7 percent on their return rates, Rittman says. In addition, it offers a Return Rewards program designed to help retailers make returns more positive for their good customers. The incentive, which could take the form of a “$10 off, today only” promotion, “thanks the consumers for their loyalty and also keeps them in the store, spending their refund dollars,” he says.

Oracle’s web-based returns management solution also automates return authorizations and screens for fraud in real time, but the rules and applications are maintained by the retailer, not a third party. The system can interface with any POS, even most older legacy systems, says Lauren Sherwood, product manager for Oracle Retail Returns Management.

Retailers can use the Oracle application to see returns patterns down to the SKU level by customer or by individual store; therefore, when a customer service representative has to deal with a customer about an individual return, she has all the relevant information right in front of her.

At chains where returns fraud is more of an internal problem, LP executives often rely on exception-based software tied into their POS to catch cashiers who commit returns fraud by pocketing cash or crediting a return to their own debit cards.

Exception-based software
Cincinnati-based Luxottica Retail, which owns and operates more than 4,300 eyewear specialty stores, uses Datavantage’s XBR exception-based reporting software tied into its POS system, says Alan Greggo, associate vice president of LP.

“Every refund is a high-risk transaction, but we look particularly carefully at refunds not applied to the original method of payment, but given instead as either cash or credited to a debit card or a different credit card than the one used for the purchase,” he says.

The exception software, says Greggo, “helps us address the issue of returns fraud very early.”

Retailers are also using returns authorization systems to deal with shoppers who abuse returns policies but who are, in every other way, a good customer -- an LP challenge commonly referred to as “wardrobing” or “closeting.”

“With women’s dresses, you see it right after prom night and after weddings,” LaRocca says. “In electronics, it happens a lot with big-screen televisions after the Super Bowl -- people bought items for some event, then return them when the event is over.

“That’s not a crime in the legal sense,” he says, “but it is abuse of the retailer’s goodwill.”

“Combating return fraud requires a system that collects and collates all return data and allows you to identify and shut down the abusers while still providing the appropriate level of customer service,” Keenan says.

“Anything you do manually at the store level is not going to have the same success rate.”

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