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Getting a Handle on Returned Merchandise

September 26, 2013


Retailers and manufacturers never like to see products returned; but, it happens. Evan Schuman contends, “One of the worst parts about managing retail businesses is dealing with unknown future returns.” [“Can Some Returns Be Predicted And The Associated Inventory/Revenue Impact Flagged?Storefront Backtalk, 29 February 2012] The editorial staff at SupplyChainBrain adds, “Returns are a headache for any company that has to deal with them.” [“How to Improve ROI on Product Returns,” 15 December 2011] There are two principal reasons that products are returned: first, they are broken or defective; second, the customer changes his/her mind.


Concerning the first type of returned merchandise, the SCB staff writes, “Determining the fate of broken, defective or obsolete items while attending to the accompanying paperwork can be a costly and time-consuming process.” Linda Olster explains why this so. She writes, “Throw in replacements, repairs, sending empty boxes for the return, getting the return back from the customer (to the right location), processing any credits, keeping track of where your inventory is … and all of sudden, you realize the process is not so simple or straightforward.” [“Managing Returns: How a Transportation Management System Can Streamline the Process for You and Your Customers,” Logistics Viewpoints, 2 February 2012] She goes on to explain how a good “Transportation Management System (TMS) can help to streamline the process and help you gain some unexpected ‘returns’ along the way.” Pun intended, I’m sure.


Concerning the second type of return, Schuman believes that Big Data analysis can help predict which products will likely be returned with greater accuracy and confidence. For example, he writes that “a customer who purchases three of the identical shoe, but each one in a slightly different size” can be predicted, with a high degree of accuracy, to return at least two of the pair of shoes. He also believes “that any purchases from a customer who has a history of high returns” will likely be returned.


According to Associated Press reporter Jennifer C. Kerr, “Each year, consumers return about $264 billion worth of merchandise, or almost 9 percent of total sales, according to industry estimates. Many buyers aren’t aware that some returns, with and without receipts, are being monitored at stores that outsource that information to a third-party company, which creates a ‘return profile’ that catalogs and analyzes the customer’s returns at the store.” [“Serial returners, beware: Retailers are tracking you,” Today Money, 12 August 2013] As noted above, dealing with returns can be a costly and complex challenge. Kerr reports that tracking returns helps stores keep prices down for the majority of consumers by identifying “chronic returners or gangs of thieves trying to make off with high-end products that are returned later for store credit.” Kerr also reports, “consumer advocates don’t like it” (i.e., they don’t like the fact that return histories are tracked).


The editorial staff at Consumer Reports ShopSmart magazine report that retailers track return data “to stop folks who steal, use, or wear items and then bring them back.” [“What’s the deal with … The returns blacklist,” July 2013] This kind of abusive and illegal behavior cost retailers “an estimated $8.9 billion in losses last year, according to the National Retail Federation.” In addition to tracking returns, the magazine reports that “some stores now require identification for returns as a theft deterrent.” The Federation claims that “62 per cent of U.S. retailers have a similar policy.” [“Beware serial returners! How retailers are joining forces to catch out shoppers who bring back too many purchases,” The Daily Mail, 21 November 2012]


The biggest player in the returns tracking field is a company called The Retail Equation. Kerr explains how the tracking process works by describing a Best Buy use case:

“—A consumer buys an item at Best Buy and later returns it. Even if the shopper has the original receipt and is within the time frame when returns are permitted, store policy requires that Smith provide a photo ID, such as a driver’s license. Other stores, such as Home Depot, only require the ID if there’s no receipt or if the item was purchased with a store credit.

“—The ID is swiped and then some information from the transaction is sent by the store to The Retail Equation. The company says the information captured from the ID typically includes the identification number, name, address, date of birth and expiration date.

“—The Retail Equation catalogs return activity by the shopper and creates a ‘return activity report’ on him with his returns at the store. If The Retail Equation determines that there’s a pattern of questionable returns that suggests potential fraud, it would notify Best Buy, which could then deny returns by that shopper at the store for a period of time.

“The threshold for too many returns is determined by each retailer. The Retail Equation says the vast majority of returns — about 99 percent — are accepted.”

SmartShop reports that The Retail Equation “doesn’t aggregate information across retailers, report to credit bureaus, or accuse customers of theft or fraud.” According to Kit Yarrow, a professor of psychology and marketing at Golden Gate University in San Francisco, even though retailers are seeing an increase in returns — “up 19 percent from 2007” — not all of the increase can be accounted for by fraud or serial returners. She claims that consumers are becoming “pickier shoppers” and are making more impulsive “purchases [of] tempting bargains. That means more returns.” [“The Why Behind the Buy,” Psychology Today, 4 September 2012] Nevertheless, Yarrow notes that returns are becoming an increasing problem for merchants. “For every dollar spent today, nine cents is returned. Consumers have a bolder mentality and higher expectations when it comes to returns.”


According to Yarrow, the challenge of how to deal with returns has placed merchants in a conundrum. She explains:

“New procedures and policies [for dealing with returns] can feel confusing, even maddening, to shoppers. Authenticity, transparency and ‘living up to promises’ are important values to consumers. Retailers use imagery, emotion and symbolism to craft an enticing image — which becomes the personality of the store. That image is an unspoken promise of a particular type of shopping experience. It’s the retailer’s job to ensure that every consumer touchpoint lives up to the promise of a store’s image. The return — that moment when the customer effectively tells the store their sales transaction was a failure, that they found something better, or a better price — is an authenticity test. And according to my research, one that retailers often fail. When that happens, shoppers feel tricked.”

It’s easy to see how retailers must walk a fine line between trying to foster customer loyalty and protect themselves from fraud. A blogger calling herself Jeannieinabottle, provides a pretty good account of why stores dislike chronic returners. She writes:

“If you return items to the same store more than twice a month, you are a chronic returner. No one likes a chronic returner. First of all, it ruins the sales tracking system. If you make a major return and do not buy something to replace it, the numbers take a huge tumble in the system. That looks horrible for the sales associates and managers working at that time. Even if you do an exchange, imagine all the effort that went into the whole transaction just to break even? It is a frustrating process for everyone involved. I can’t imagine why customers want to constantly take part in this process on a regular basis. If you are a compulsive shopper and feel guilty as soon as you get your purchases home, then seek some help. The endless cycle of shopping and returning is not helping you or the stores where you shop. If you never try the clothes on at the store, but instead take them home, you need to find a way to either A) successfully evaluate your size, or B) start using the dressing rooms. Also, it helps to make sure you want the product. Don’t just make the purchase thinking you can just take it back if you change your mind. You should not be so indecisive that you are making returns constantly. I do understand that we all have to return items here and there. I just had to return a vacuum that broke after using it only two months. I know these things happen. Most managers and sales associates fully understand that. Even if a return is time consuming, it is still a necessary retail evil. However, when customers abuse the system and return items all the time, that is a real nuisance.” [“Are You an Annoying Customer?HubPages, 10 May 2013]

There are no silver bullet solutions to the returns problem. Both merchants and consumers have a role to play if returns policies are to remain reasonable and fair. With billions of dollars at stake, you know that retailers are going to protect themselves as much as they can from fraud and abuse.

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