LP CORNER with Theresa Rowsell
RECOGNIZING RETAIL RETURN FRAUD
From “wardrobing” to price switching, today’s consumers are using a variety of methods to cheat and steal from retailers
hen most people think of retail fraud, the primary nefarious acts that come to mind include credit and debit fraud or the passing of coun- terfeit currency. Rightfully so for these are the issues that have typically kept loss prevention professionals awake at night. However, a recent study by Statistics Canada has shifted the attention of re- tailers to an impact that may have been underestimated: returns fraud. In its first broad-based Canadian survey on busi- ness fraud released earlier this year, Stats Can reported bogus returns outranked credit, debit card fraud and counterfeit money as the biggest factor affecting re- tailers’ bottom lines.
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One of the most common forms of re- turns fraud is “wardrobing” or “renting.” This is when a customer buys merchan- dise for an occasion — a dress for a wed- ding or a big-screen TV for the Super Bowl — with the intent to return it when the event is over.
businesses having to resell the merchan- dise at a reduced cost.
A more devastating approach is receipt fraud, in which falsified, stolen or reused receipts are used to return merchandise. This technique is used by the more sea- soned professional thief and with recent advances in printing technology, it has be- come much simpler for fraudsters to pro- duce fake receipts that are difficult for retailers to spot. This is dangerous for business owners because of the 100 to 200 per cent dip into profits due to the fact that the “returned” merchandise was often already stolen, in some cases from the same location, multiple times. Another scam is called “price arbi- trage” or “price switching,” an approach typically used by more amateur thieves
16 SECURITY MATTERS • SEPTEMBER/OCTOBER 2010
and involves the switching of price tags from a higher-priced product to a lower- priced item then returning the product and pocketing the difference.
This often results in
These are just a few methods used to take advantage of unsuspecting store- owners and staff. So how can business owners fight back? While one’s first reac- tion may be to simply refuse returns, re- tailers are in the customer service business and taking back items is an im- portant part of their relationship with their customers. Retailers need to balance cus- tomer satisfaction with return policies that will help protect their business. It’s no secret that fraudsters target stores with lenient return policies. The fol- lowing practices can be used by most re- tailers to help reduce the chances of being targeted while still allowing legiti- mate returns: • Offer store credits or equal exchanges to limit or eliminate cash refunds — for the lowest recent price of the item (e.g., to protect against returning what was bought on sale for full value);
• Issue refunds only in the same cur- rency used for the purchase (e.g., if the item was purchased with a credit card,
only issue a credit to that same card);
• Require receipts for cash returns; • Limit the length of time allowed for returns; • Flag customers who try to return nu- merous items in a short period of time;
• Returns over a certain threshold (i.e., amount of money) must be completed by a store manager or senior staff person;
• Use watermarked receipt tape that cannot be photocopied or printed on basic receipt tape; and
• Deploy point-of-sale terminals that have reporting capability or are linked to exception reporting technology. To further battle returns fraud, ensure staff understand how to spot this criminal act while also properly balancing the in- teraction with legitimate customers. It is important that staff use sound judgment and are trained on how to enforce the store’s return policies when they en- counter a fraudulent return, which can often be very difficult depending on the tactics being used.
Many people attempting to commit re- turns fraud purposely cause confronta- tions at the register to rattle the clerks and force them to complete the transaction. Retailers need to support employees by putting up signs at cash registers and printing returns policies on receipts. Though returns fraud can be difficult to spot and sometimes uncomfortable for frontline staff to deal with, finding the right combination of policies and procedures that suit your business can go a long way to avoid being targeted by career crimi- nals and casual opportunists.
Theresa Rowsell is the associate vice president of operations loss prevention with the Retail Council of Canada (
www.retailcouncil.org).
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