How can retailers prevent someone from buying an expensive piece of apparel or jewelry, wearing it for a special occasion, then returning it for a full refund? Or stop people who purchase big ticket items like televisions just before the Super Bowl, for example, and then return them after the event?
Despite fears of offending shoppers with strict return policies, retailers have begun combatting both types of fraud using low-tech solutions like one-time-use tags that stop people from returning expensive items if removed and high-tech computer algorithms that identify serial returners.
In documenting the problems and the growth of these types of fraudulent returns, the National Retail Federation’s 2018 Organized Retail Crime survey estimated that return fraud and abuse amounted to $24 billion in 2017.
Wardrobing — the return of used, non-defective merchandise — accounted for 32 percent of all retail return fraud in 2017, a loss of $7.6 billion.
NRF Vice President for Loss Prevention Bob Moraca says apparel, which includes expensive gowns and suits — typical targets of wardrobing — accounted for 13 percent of total returns.
“Only half of what’s returned can be resold,” says Stuart Rosenthal, vice president of sales and marketing for Alpha High-Theft Solutions, a brand of Checkpoint Systems, a division of CCL Industries and a provider of single-use tags. He says one report estimated that almost two-thirds of retailers have “encountered customers who use an item and then return it for a refund.”
And, he adds, “people who ‘wardrobe’ on average return about 20 items a year per person, not including items stolen and returned.”
A ‘HUGE PROBLEM’
In the past few years, retailers and the manufacturers of single-use security tags as well as companies like Appriss and Brightpearl have stepped up their efforts to confront problems like wardrobing and serial returners.
Appriss Retail provides artificial intelligence software that can pinpoint people who serially return products. Brightpearl provides customer relationship management systems that allow retailers to better track their customers’ returns. Companies can tag a customer in the system and then monitor their purchase histories and returns, and use that to pinpoint those with higher return rates or odd patterns of behavior.
Last year, Brightpearl conducted two return fraud studies, one documenting retail return trends in both the United States and the United Kingdom and the other consumer attitudes toward returns and retail return policies.
Based on feedback from the retail study, which surveyed more than 200 retailers, Brightpearl’s CEO Derek O’Carroll described wardrobing as a “huge problem, costing retailers millions.”
He notes that many stores don’t want to make their return policies stricter, to avoid alienating customers who might object to a more limited or strict return policy: 83 percent of shoppers say “they check returns policies and only shop again with a store that has a returns policy they like.”
But O’Carroll says consumer research shows customers are now returning 66 percent more items than five years ago. “That’s adding a significant cost and complexity to returns management, especially for many ecommerce brands that are already operating on slim margins.”
More than half of all retailers surveyed in the United Kingdom and 44 percent in the United States by Brightpearl report their margins being significantly squeezed by the process of handling and packaging returns.
LOW TECH, HIGH OUTCOMES
National retailers including Bloomingdale’s have adopted single-use security tags, regarding them as low-tech but extremely efficient deterrents. Alpha introduced the first single-use tag about 15 years ago; when wardrobing was recognized as a growing and serious problem about five years ago, sales of the Alpha Shark Tag spiraled up — 300 percent from 2014 to date, Rosenthal says.
Chris Benzing, vice president of sales for Retail Security Group Inc., which distributes security tags, calls single-use security tags “the wave of the future, cost-effective enough that even consignment shops can use them for the value they provide.”
The three-inch tags, typically bright and colorful, are placed on apparel in highly visible places. They “work quite well,” Benzing says. “You really can’t defeat them. It’s a no-win for people who want to abuse returning goods.”
“These tags are successful,” Rosenthal says. “They’re low cost, bright and colorful, and stand out when placed in a conspicuous location. It makes it harder for a person to try to wear an expensive item, then return it. It’s a visual deterrent.”
The tags typically carry an alert saying the item cannot be returned or exchanged without the tag attached. Some tags are customized — Bloomingdale’s has its name on its single-use tags — while others are more generic, which reduces their costs even further, a benefit for smaller retailers.
Over 30 large retail chains and a growing number of specialty stores are using Alpha Shark Tags in the United States alone, Rosenthal says; Checkpoint has just introduced a similar tag called R-Turn in Europe, where wardrobing fraud is also on the upswing.
Last year, research done by Brightpearl in association with OnePoll compared the behaviors of 4,000 adults who shop online in the United States and the United Kingdom with the views of 200 U.S.- and U.K.-based retail decision makers.
They found both shoppers and retailers agree the problem of return fraud needs to be tackled, O’Carroll says, but whether retailers are being clear enough with consumers about return policies “is a point of contention.”
Almost half of all respondents in the consumer survey admitted they will, at least sometimes, buy items with the intent of sending some back. The practice was most pronounced in the 18- to 34-year-old age group: O’Carroll says that suggests “serial returners could be here to stay,” unless retailers act to discourage that behavior through return policies.
From the retail perspective, over one-third of retailers in the United Kingdom and 42 percent in the United States said they had seen an uplift in serial returners in the last 12 months, while 44 percent in the United States and 50 percent in the United Kingdom agreed their margins are being strongly impacted by the returns.
O’Carroll notes the cost of cleaning, repackaging and getting items ready for new owners averages $5 billion in the United States and could triple in the coming years. It makes sense for retailers to adopt more stringent return polices “while providing shoppers with very seamless and clear instructions about how the policies work.”
Given the success of retailers who have tested or adopted single-use tags, Moraca notes it would be wise for other retailers to use their “creativity” to come up with something similar and attach it to higher-end products.
“It just makes sense.”
Liz Parks is a Union City, N.J.-based writer with extensive experience reporting on retail, pharmacy and technology issues.