The War Against Retail Return Abuses

Using databases to prevent return abuses pits a U.S. Senator against a database vendor, with national retailers caught in the middle.

With the holiday season comes fruitcake, traffic jams and an anticipated onslaught of must-be-returned gifts from well-meaning (and possibly colorblind) friends and relatives.

But sprinkled amongst those gift-receipt-clutching consumers are what the industry considers thieves: people who deliberately use return policies to steal. The tactics vary, from “free customer rentals”—where someone purchases an outfit, wears it to an event, and then returns it the next day—to those who purchase two items that look similar but are priced very differently and then switch the boxes so they return the cheaper item and get the refunded money from the higher-priced item.

The issue is anything but trivial for retailers. A Harris Poll released this week found that 91 percent of consumers interviewed considered return policies and processes as important to their decision about where to make a purchase. It also found that almost one-fifth of U.S. adults have held onto unwanted merchandise four or more months, before trying to return it to the retailer, according to the survey sponsored by Newgistics.

“It’s an issue that a lot of consumers care about,” said Blake Zeff, communications director for U.S. Sen. Charles Schumer (D-NY), who “wants retailers to cut down on these (return) policies, these excessive policies.”

/zimages/2/28571.gifTo read more about a tracking service that aims to make retail returns easier, click here.

A California-based company called The Return Exchange looked at the situation and saw an opportunity to use a standard Windows-based SQL Server database approach to apply customized rules to identify customers whose buying patterns made them look like return abusers.

Here’s how it’s supposed to work: A customer walks in and attempts to return a product. The clerk asks for identification and enters that into the system so that all of that customer’s purchases can be linked.

The identification information and the return data is automatically sent (either using dial-up, a broadband VPN or a direct T1 connection) to a database that The Return Exchange has set up exclusively for that particular retail chain. That database can be accessed—on The Return Exchange’s server—by anyone in that company’s IT department.

When that database (called Verify-1) sees what it considers to be a return abusive pattern, it will reject that return, in the same way that a POS would reject a stolen credit card. The clerk then would give the customer an 800 number to The Return Exchange, which would then investigate the case.

Retailers are reporting billions of dollars of annual losses from return abuses and The Return Exchange sees this as a way to combat such fraud.

But U.S. Senator Schumer sees it differently. He held a news conference this week in front of an East Side Sports Authority store and identified them and a handful of other retailers—including Express, KayBee Toys, The Sports Authority and Guess—as essentially blacklisting customers who return a bit too much.

/zimages/2/28571.gifTo read more about the latest retail technology techniques to combat fraud, click here.

“There’s a familiar saying this time of year ‘many happy returns’ but sadly, in some stores, that just isn’t the policy,” Schumer said. “We all know the disappointment of buying a friend or family member a gift only to find out they already have one or don’t want it. But some of us aren’t being extended the right to return any more gifts – and the least the stores can do is tell us why.”

That “tell us why” part is the essence of the controversy. Schumer plans on introducing legislation in the Senate next month that will require retailers to prominently disclose their precise return prohibition formula before customers can make purchases.

Next Page: The Return Exchange’s perspective.