As previously reported by LP Magazine, The Retail Equation released the 2013 Consumer Returns in the Retail Industry report in January. This report analyzes results from the National Retail Federation’s survey on merchandise returns and the 2012 Canadian Retail Security Survey from the Retail Council of Canada (RCC). The purpose of this report is to provideinsights for North American retailers and minimize the effectand minimize the effect of return fraud and abuse on their business. According to the NRF, merchandise returns in 2013 cost U.S. retailers more than $267 billion in lost sales.
“In the competitive world of retail, it is critical to understand how returns and return fraud reduce net sales and contribute to shrink – clear causes of lost profits,” said Mark Hammond, chairman and CEO of The Retail Equation. “This information can be used by loss prevention professionals to compare and contrast their own program results to those reported here, with an eye toward reducing losses.”
With this in mind, we decided to explore the survey in more depth, and ask The Retail Equation to provide additional insights regarding how this information is gathered, and how it can be used by the retail community to help reduce company losses. We then sat down with Tom Rittman, vice president of marketing, to find out.
LP Magazine: How are the statistics used in the Consumer Returns in the Retail Industry report gathered?
Tom Rittman: Our solution, Verify Return Authorization, is used in more than 27,000 retail locations. As part of the service, TRE is contracted by retailers to gather their transaction information, store it securely, and analyze the data to develop and improve risk models which in turn, allow the retailers to improve their overall return practices. To do so, we have a team of statisticians constantly reviewing billions of transactions to determine consumer shopping trends to update these predictive analytics models. In the case of the holidays, interesting statistics regarding returns are used as part of these ongoing enhancements.
LP Magazine: How specifically do you work with retailers?
Tom Rittman: Integrated directly to a retailer POS, TRE’s Verify Return Authorization solution enables retailers to use precise, objective and verifiable data to determine in real-time whether a return is valid or not, rather than relying on subjective observations and guesswork by sales clerks. This objectivity approves legitimate returns and ensures that only those with highly suspect return-and-exchange behavior are affected.
LP Magazine: How can these numbers then be interpreted by retailers to drive performance and improve results?
Tom Rittman: Understanding trends and patterns from the depth of detail contained in consumer transaction history is critical to improving the shopping experience. By looking at purchase and return behavior across attributes like geographic location, items/departments, seasonality, employees interacted with, and more helps retailers determine the most effective way to manage a critical consumer touch-point – the return desk. We provide a detailed analysis to our clients that breaks down these metrics to give them a full picture of the risk and potential of their customer base.
LP Magazine: Are you able to tell us, in general, what types of retail segments showed the highest rates of returns? Which had the fewest?
Tom Rittman: Yes, below is a table from the recently released 2013 Consumer Returns In The Retail Industry report. As you can see, the auto parts category has the highest return rate with 18.26 percent while the beauty category had the lowest with 5.24 percent.
LP Magazine: Your report states that if managed properly, holiday returns offer a source of good consumer traffic for retailers. How?
Tom Rittman: Once considered a cost of doing business, many retailers today are rethinking the return counter to make the shopping experience better for customers, which can have big benefits to the bottom line. For example, because our solution utilizes predictive models to eliminate fraud, many of our retailers can relax their restrictive return policies which impact all consumers and often negatively impact their rate of spend. Additionally, retailers can drive incremental sales through our product called Return Rewards®, which uses information about a consumer’s return transaction to instantly customize an offer for that particular person at the point of return. This provides an immediate incentive for the consumer to continue shopping at the store and for a specific product. Return Rewards utilizes shopper insights, which are derived from actual purchase and return behavior, making it the only service available today with the ability to influence a known category shopper while they are in the store.
LP Magazine: How can these types of technology benefit retailers year round?
Tom Rittman: The retail industry is currently experiencing a significant fraud and abuse problem that is growing in both size and sophistication. Retailers are losing more than $9.1 billion to $16.3 billion per year due to return fraud and abuse.
Our Verify technology is designed to identify the approximately 1 percent of consumers whose behaviors mimic return fraud or abuse, yet cause almost 10% of returns. Without this system, retailers are forced to consider stricter policies such as “no receipt, no return,” or raise prices for consumers to offset the losses incurred from fraudulent returns. Verify helps retailers improve customer service at the return counter, manage their optimal return rate, and reduces the return rate by 8 percent and shrink by 13 percent.
For a complete copy of the 2013 Consumer Returns in the Retail Industry report, please visit www.theretailequation.com/Retailers/IndustryReports.aspx.