Tis the season for return fraud

A look at common return fraud scams and what retailers can do about it

All of these losses add up for retailers and force them to put policies in place to protect themselves.

Tightening the loopholes
Retailers have done a lot to tighten the loopholes, which previously made return fraud easy. For example, by requiring a receipt, retailers can greatly reduce return of items that may not have even been purchased at that store. Receipt returns also make it easier for retailers to verify the price of the goods purchased.

Retailers have also cut down on the attractiveness of receiving cash for refunds by reimbursing to credit cards as opposed to handing out cash. This deters thieves who are looking for immediate cash returns. Exchange-only and in-house credit return policies also cut down on fraudulent returns made in order to access cash.

And the future holds even more exciting prospects for retailers when it comes to preventing retail fraud. As RFID and other emerging item-level tracking technologies gain prevalence, retailers will have the capabilities to track purchases by item, as opposed to by SKU, as is done today. This will eliminate the problems of multiple refunds made on a single product. It will also provide detailed information on when and for what price the item was purchased and avoid unintentional or purposeful returns of sale items for full price. Item-level tracking can also prevent out-of-warranty credits and returns by providing a record of exactly when that particular item was sold and when the warranty expires.

The best policies
The trick for retailers is to successfully manage that balancing act between protecting themselves with policies, while simultaneously offering great service and giving legitimate customers an opportunity to return items that they do not want, like or somehow do not work for them.

There are some golden rules for retailers when it comes to managing returns policies. For one, communication is key! Establish clear return policies and clearly and outwardly communicate them to customers. If customers understand the return policies, they can make decisions accordingly and won't be surprised if and when the time comes when they need to make a legitimate return. For example, train cashiers, especially during the holidays, to clearly communicate with customers, "If you need to return this, you must have a receipt and it must be within 90 days of purchase." Or: "If you should need to return this item for any reason, we are happy to issue you an in-store credit." Customers who understand the returns policy will be more comfortable with their options.

Another tip is to evaluate situations on a case-by-case basis and get management involved when needed. If a legitimate customer has a unique situation, then a manager needs to be pulled in to make a judgment call. In the end, no amount of technology or communication should inhibit the manager's authority to make a decision to take care of the customer.

It's important to track odd returns and/or repeat offenders. By using driver's licenses, credit cards and video surveillance, retailers can create a track record of abnormal activities or repeat offenders, flagging them for investigation. While retailers should enter into transactions assuming that they are legitimate (because the vast majority are), it is not necessary to fall victim to repeat offenders. Retailers can easily flag transactions, credit cards, or even individuals who have questionable intentions so that they are refused service on their next visit.

As retailers work toward technologies that continue to close the window on return fraud through more specific, item-level tracking, loss prevention professionals can protect themselves by being aware and making smart decisions when it comes to putting policies around how, when and where items may be returned.

About the author: Eric White leads the retail strategy practice at Wren, providers of physical security solutions used by some of the world's most innovative and respected retailers. White has 20 years of experience in loss prevention, asset protection and physical security and writes about his experiences in the Wren LPXtra blog. White can be reached at eric.white@wrensolutions.com. To learn more about Wren's solutions, visit www.wrensolutions.com.