Return Fraud’s Growing Impact on Sales, Jobs and Shrink Highlighted in Tenth Annual Report from The Retail Equation

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    The Retail Equation, a leader in retail transaction optimization solutions, recently released its 2014 Consumer Returns in the Retail Industry report, which analyzes results from the National Retail Federation’s 2014 annual survey on merchandise returns and the 2012 Canadian Retail Security Survey from The Retail Council of Canada (RCC), to provide insights for North American retailers to help them minimize the effect of return fraud and abuse on their businesses.

    According to the NRF, merchandise returns in 2014 cost U.S. retailers more than $284 billion in lost sales. In fact, as a company, this would rank second on the Stores Top 100 retailers list—three times the size of the current #2 retailer. Retail fraud and abuse accounted for $10.8 billion to $17.6 billion in the United States, an increase of 20 percent from last year.

    “For both retailers and consumers alike, it is important to recognize the impact of returns and return fraud on net sales and its contribution to shrink. In the competitive world of retail, these causes of lost profits directly influence retail jobs and consumer prices,” said Mark Hammond, chairman and CEO of The Retail Equation. “The results within this report are designed to generate industry discussion regarding best practices for accepting customer returns and controlling fraud and abuse.”

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    The extreme loss of profit has the potential to cause retailers to offset the negative business impact by raising prices and reducing costs, which often means a loss of jobs. Last year alone, return fraud had the potential to cost retailers and workers between 382,000 and 620,000 jobs. And the cost to each state is steep. Retail revenue losses are costing states a total of $663 million to $1.076 billion in lost sales taxes.

    Using figures from the RCC, TRE estimates that annual merchandise return fraud and abuse accounted for $1.2 to $1.7 billion in the Canadian retail industry. Because of the significant retail revenue losses caused by return fraud and abuse, federal and provincial governments are losing a total of $144 to $205 million in sales tax revenues and costing retailers and Canadian workers between 30,000 and 44,000 jobs.

    In addition to the figures listed above, The Retail Equation’s report provided a number of key findings, including:

      • Examples of Return Fraud—The report showed a 30 percent increase in reports of fraudulent returns made by organized retail groups, from 60.3 percent to 78.2 percent. This shows the need for systems that can discover links between seemingly unrelated returns.
      • Analysis of Return Fraud by Tender Type—Return fraud perpetrated using gift cards and merchandise credits is up 72.7 percent from 2013.  A reminder that all tender types are susceptible to return fraud; therefore, all should be considered when developing a solution for fraudulent and abusive returners.

    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.  The Retail Equation can help address such challenges through a return optimization solution called Verify-3®. 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.

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