Retailers fight returns with data and policy changes

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Just as wardrobing — the return of used, non-defective merchandise — is a costly subset of return fraud, so too is serial returning — people buying and then returning items very frequently. Organized retail criminals often use both tactics to commit retail fraud; both are made more damaging every year by the growing number of shoppers buying items online, then returning them to the stores associated with the online brand they had shopped at.

According to the National Retail Federation’s 2018 Organized Retail Crime survey, 29 percent of retailers reported an increase in fraud involving items purchased online and picked up in-store. Retailers said 8 percent of returns were fraudulent, and 32 percent cited wardrobing as an example.

These incidents and losses increase over the holiday season: Retailers in the NRF survey expected 11 percent of 2018 winter holiday purchases to be returned, anticipating that 10 percent of those returns would be fraudulent.

NRF’s Vice President for Loss Prevention Bob Moraca says in the aftermath of major storms, people will go to large home improvement centers and buy items like chain saws, generators and ropes to clean up. But, once the cleanup is done, he says more and more people will return those items and say they weren’t used or stopped working. Retailers, although they feel somewhat trapped about accepting those returns, “will take them back because you are never going to call your customer a liar,” he says.

The same thing happens around big sporting events when people come in, buy large-screen TVs and then return them after the games, he says.

But now some retailers are tracking customers associated with a high level of returns and adopting a policy of not accepting returns over a certain amount. In effect, they’re creating a “blacklist” of people who return items to physical stores or send online orders back too often.

AN ‘EXPENSIVE BURDEN’

The list is created by using artificial intelligence algorithms running in the cloud which use the same database throughout an entire company to store various types of data for different computerized functions. Among the companies that provide such services are Appriss Retail and Brightpearl.

Brightpearl also reported that 42 percent of U.S. retailers have seen an uplift in serial returners over the last 12 months and that 61 percent are planning to ban them.

Amazon took the blacklisting approach last year when management changed its return policy to control and thwart serial return repeaters. Germany-based Zalando is experimenting with return fees in some markets and using single-use tags to discourage wardrobing, and U.K.-based online retailer ASOS announced a change to its returns policy earlier this year to crack down on serial returners.

ASOS now monitors customers who continually buy and return clothing, with an announced plan to deactivate the accounts of those it deems to be serial returners. London-based Harrods is doing the same.

Research conducted by Brightpearl last year discovered that more than a third of stores in the United Kingdom as well as 44 percent in the United States have seen increases in serial returns over the last year.

“This is proving to be an incredibly expensive burden for retailers to take on,” says Brightpearl CEO Derek O’Carroll, “particularly when almost half of all retailers are already seeing their margins being severely impacted by the cost of handling and packaging returns.”

Brightpearl also reported that 42 percent of U.S. retailers have seen an uplift in serial returners over the last 12 months and that 61 percent are planning to ban them, possibly motivated by Amazon’s pioneering move in May 2018 to close the accounts of customers who request too many refunds.

Both O’Carroll and Tom Rittman, vice president of marketing for Appriss, attribute much of the increase in serial returns to the growth in ecommerce.

“The more people purchase online, the more they now take those purchases to stores to return, so stores are seeing higher returns than ever,” Rittman says. “That creates a need for retailers to study their returns to separate good customers from bad.”

DATA-DRIVEN DECISIONS

One big contributor to serial returns is the growth in “try before you buy” policies, O’Carroll says. “Our research indicates that TBYB will result in four times more returns when implemented.”

Although almost all large national brand retailers have systems to help identify serial returners, 69 percent of mid-market retailers do not, he says, which means they don’t currently have the technology to manage their returns.

Rittman says 50 nationwide retailers are now using Appriss’s Verify system to minimize serial returns. Last year Appriss, which has return authorization systems in more than 34,000 North American stores, processed more than 3 billion real-time requests for analytics-driven decisions.

Verify’s algorithms examine shopper purchases and behavior in each client’s stores or ecommerce sites; by calculating over 3,000 statistics, it compares the behavior of return shoppers to determine how those behaviors relate to each individual retailer’s return policies. Then the algorithm makes an AI-powered decision on whether or not to accept a return.

Last year, Verify reduced return dollar losses for retailers by an average 8 percent, he says. “If you are a billion-dollar retailer, that could be tens of millions of dollars or even more.”

Brightpearl has noted that a quarter of retailers they surveyed conceded that introducing lifetime bans for problem shoppers is necessary to protect slim margins. Nearly half of U.S. retailers surveyed said that imposing such a ban would also save time and administration resources.

However, retailers do have one reservation about return blacklists: fear of customer complaints, abandonment and bad publicity. When Amazon launched its new policy last year to deal with serial returners, there were a large number of consumer complaints and negative stories, many saying that Amazon had stopped accepting returns without warnings.

O’Carroll says ASOS also unintentionally generated a wave of bad publicity when complaints about being banned for returning goods showed up both in the press and on social media websites.

The complaints seem to have died down, but Rittman says there is a lesson to be learned: “You always want to give a consumer visibility so they can know returns are being watched.”

The Amazon and ASOS experiences with disgruntled consumers show consumers “are looking for fairness and choice when returning merchandise,” O’Carroll says. “Some feel they have been treated unfairly, which could alter brand preferences.”

That’s why it’s important “to have an easy-to-understand metric that qualifies a serial returner. Defining and measuring serial returners as part of a fair returns process and being able to communicate that process will maintain the retailer-consumer relationship.”

Liz Parks is a Union City, N.J.-based writer with extensive experience reporting on retail, pharmacy and technology issues.

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