The ugly holiday sweaters and cheap, smelly colognes and perfumes. We’ve all been recipients of unwanted gifts. The good news is that correcting the problem has always been easy. We just show up at the store and either exchange the unwanted items for items more desirable or we obtain a refund or store credit. The reason the return process is so easy is because retailers have invested a great deal of resources to set up convenient return/exchange programs for their customers, which helps sales in the long run. Not many people would want to shop at retailers who make it difficult to return or exchange items. However, there’s a serious unintended consequence to these customer-convenient return policies. Shrink!
The Implosion of Profits
It is estimated that 10% – 13% of merchandise sold for the Holidays will be returned. If that doesn’t surprise you, perhaps the dollar value – $71 billion to $92 billion– will. That’s a pretty hefty portion of annual sales, which totaled $707.5 billion in 2018. Loss Prevention professionals need to be concerned about this because the fact is, over 21% of returns are presented without receipts. In fact, nearly 29% of retailers reported an increase in fraudulent Buy Online Return in Store (BORIS) returns. Compounding the problem is that some retailers do not have a solid plan to properly process and store the returned merchandise. Those who fall into that category will undoubtedly be hit with unprecedented shrink. Without a solid plan in place, any large influx of merchandise will cause unwanted markdowns, which contribute to shrink.
Sure, retailers do plan for some markdowns, but the cadence of markdowns is extremely important. Retailers may start out offering 20% off specified holiday merchandise, but the markdown percentage increases over time until the merchandise is sold through. Now, imagine an increase of 20% of returned inventory! In order to accommodate this, larger markdown percentages will have to be offered to avoid a total loss caused by a retailer being stuck with the merchandise. Stockrooms are already tight in retail stores, so keeping the merchandise is hardly an option. Many financial budgets have been blown due to a lack of proper planning for holiday returns.
…And Then There Was Fraud
Refund Fraud is a large issue and one that is rarely cited as a leading cause of profit erosion. But recent surveys and experts reveal that Refund Fraud accounts for 5% of total returns. According to this new information:
- Returns as a percent to sales is 10% (based upon NRF’s estimated median return rate)
- 2018 Returns totaled $71 billion
- With 5% of returns being fraudulent, this equates to nearly $3.5 billion in lost revenue
Ensuring the right tools are in place will help Loss Prevention professionals build a solid plan for efficiently dealing with returns. For example, EAS systems with RFID capability, coupled with the right EAS/RFID tags, is one of the most important things a Loss Prevention professional can do to ensure the success. Although a huge challenge for retailers has always been getting a high level of tagging compliance from employees, some retailers have employed source-tagging. But if determining an effective ROI from an EAS system is the goal, then shoplifting isn’t the only thing to look at. The most successful LP executives know this, and that is why Refund Fraud reduction is one of the main benefits they realize from a modern and efficient EAS system that is coupled with the right EAS/RFID tags.
With this solution, employees know instantly if an item being returned was ever previously purchased. This new ability finally allows stores to curb the type of fraud in which suspects grab items off the shelf and immediately present it to the Returns Desk for a refund without ever purchasing the item.
Plan the Work, Work the Plan
As Loss Prevention professionals prepare for the holiday season, it’s important for them to consult other professionals who supply solutions to address their pain points. Nedap has been working with Loss Prevention professionals worldwide to help alleviate the negative financial impact caused by holiday returns. Because the sheer amount of returns that continues to increase, partnering to create an effective plan and to work that plan has never been more important.
Want to learn how you can reduce Refund Fraud using the right EAS/RFID tags? You can contact Tom Bolanos or learn more by subscribing to our free RFID LP Academy.