Retailers today face a significant challenge beyond inflation, shrinkage, or self-checkout lines: the return problem. In 2022, retail sales amounted to approximately $5 trillion, with 14.5% of these sales—around $743 billion—being returned . This article explores how retailers are addressing this issue and quietly targeting ‘problem’ returners.
The Rising Costs of Returns
Returns have always been a financial burden for retailers. The advent of e-commerce has exacerbated this issue as retailers absorb the costs of postage, transit, and lost items. As a result, many big-box retailers have started changing their return policies to make it harder for fraudsters and reduce return-related costs . In 2023, 81% of retailers implemented pay-to-return policies in some capacity . Major retailers like Amazon and Macy’s have shortened return windows and added fees for returns .
Understanding Return Fraud
Return fraud significantly impacts retailers. Fraudulent returns are estimated to account for 16.5% of holiday returns in 2022, translating to $24.5 billion . Common types of return fraud include wardrobing (buying items to wear once and then returning them) and returning broken products or different items altogether. While some fraudulent returners are aware of their actions, others might unknowingly exploit return policies, making them problematic for retailers .
Retailers’ Response to Return Fraud
To combat return fraud, retailers have quietly been tracking customer return behavior for years. This involves profiling customers based on their return habits and, in some cases, banning them from returning items altogether . A 2018 Wall Street Journal report highlighted this unspoken policy among big-box retailers, who use companies like The Retail Equation to monitor and score return behaviors .
The Retail Equation and Return Scores
The Retail Equation works with retailers to define potentially fraudulent behaviors and track customer return activities. Factors considered in a return score include the frequency of returns, transaction values, whether the customer has a receipt, and purchase history . High return scores can lead to warnings or bans, even if the customer is technically following return policies .
Real-Life Implications of Return Scores
Imagine buying a laptop from a big-box tech store, deciding it isn’t for you, and returning it within the proper time frame with all required documentation. Later, you purchase a flat-screen TV from the same store but return it because it isn’t the right size. Despite following all the store’s return policies, you are told you can’t return the TV. The store directs you to contact a third-party company, which reveals that your return behavior has been tracked and scored, leading to a refusal of your return .
Customer Backlash and Legal Actions
Customers often feel blindsided by return blocks, leading to complaints and legal actions. Some class-action lawsuits against The Retail Equation and major retailers have been dismissed, but the complaints highlight issues like incorrect data and lack of transparency . Customers argue that they were not informed about the tracking of their return behaviors or given an opportunity to correct any inaccuracies .
Why Retailers Are Tightening Return Policies Now
The current economic environment, with rising interest rates, has made it more expensive to be a retailer. To maintain profitability, retailers are tightening policies on returns, which have historically been a drain on resources . In 2023, the US retail industry lost over $101 billion to return fraud and abuse . Additionally, the cost of processing returns can be up to 40% of the original retail price, with no guarantee that the returned item can be sold at its original price .
Strategies for Reducing Return Fraud
Retailers are employing several strategies to combat return fraud and reduce costs:
- Shortening Return Windows: By reducing the time frame for returns, retailers hope to minimize the window of opportunity for fraudulent returns.
- Charging Return Fees: Introducing fees for returns can deter frivolous or fraudulent returns.
- Tracking and Scoring Returns: Using third-party services like The Retail Equation to monitor return behaviors and assign scores helps identify and penalize problematic returners.
- Enhancing Product Descriptions and Quality: Improving online product descriptions and ensuring high product quality can reduce the likelihood of returns due to dissatisfaction.
- In-Store Returns: Encouraging in-store returns can help retailers inspect items more thoroughly before accepting returns.
The Future of Return Policies
As the retail landscape continues to evolve, so will return policies. Retailers are likely to continue refining their strategies to balance customer satisfaction with profitability. This might involve further integration of technology to track and analyze return behaviors more accurately and fairly.
Conclusion
Retailers like T.J. Maxx and Home Depot are quietly targeting ‘problem’ returners through sophisticated tracking systems and stricter return policies. While these measures aim to reduce the financial burden of returns, they also raise concerns about customer privacy and transparency. As the battle against return fraud continues, both retailers and consumers must navigate this complex landscape to find a balance that works for both parties.
Key Takeaways
- Return Problem: Returns are a significant financial burden for retailers, costing billions annually.
- Fraudulent Returns: Common fraudulent behaviours include wardrobing and returning broken or different items.
- Tracking Returns: Retailers use third-party services like The Retail Equation to track and score return behaviours.
- Customer Impact: High return scores can lead to warnings or bans, even for customers following return policies.
- Economic Pressures: Rising costs are prompting retailers to tighten return policies to maintain profitability.
- Future Strategies: Retailers will continue to refine return policies, balancing customer satisfaction with financial sustainability.
For more information on return policies and how they might affect you, visit The Retail Equation and stay informed about the terms and conditions of the stores you shop at.
By understanding these dynamics, consumers can better navigate their shopping experiences, while retailers can improve their approaches to handling returns, ultimately leading to a more sustainable retail environment.
