rajesh mahajan _ maumita mam's project on customer returns

8/8/2019 Rajesh Mahajan _ Maumita Mam's Project on Customer Returns

1/15

Project on

CUSTOMER RETURNS IN RETAIL INDUSTRY

Submitted to, Prof. Maumita

In a partial fulfillment of, Master in Management Studies.

Submitted by,

Rajesh Mahajan 72

Bipin parajuli


2/15

Purpose

This survey executive summary provides return-related data and information that

retailers can use to improve their business processes. The LPRC was asked to

benchmark common return policies and practices and obtain an estimate of the

amount of return fraud/abuse experienced in the retail marketplace. It is hoped

that by gathering and sharing this information, best practices for accepting

customer returns and controlling return fraud/abuse can be developed to maximize

profits and minimize losses from customer returns.

Objectives

Identify retail industry returns rates including: total returns, receipted returns,

Non-receipted returns, and the various forms of fraudulent and abusive returns

as identified by the retailers.

Identify current practices in the retail industry for processing customer returns.

Identify issues related to customer returns that are common among retailers.

Share the results of the survey with the retail industry as a whole.

Key Findings

RETURN FRAUD/ABUSE RATE AND DOLLARS

Return fraud/abuse was estimated to be at 8.23% of total returns, which is

slightly lower than the 8.83% rate averaged from all four surveys. Extrapolatingthe 7.32% return rate across the entire retail industrys sales (illustrated below)

implies that return fraud and abuse is a $15.5 billion problem for retailers.


3/15

OVERALL RETURN RATEThe overall return rate of all companies surveyed was 7.32% of total gross sales.

This finding is in keeping with the previous surveys, which listed rates of 8.16%,

8.69%, and 7.85% in 2005, 2004, and 2003, respectively. The return rate of

different industry segments varied greatly (see table below), probably due to

differences in merchandise. There were also significant differences between

companies within a retail category, likely due to different return policies or

different accounting practices.

RETURN RATE BY RETAIL CATEGORY

RETAIL CATEGORY RETURN RATE RECEIPTED NON-RECEIPTEDDepartment Store 15.33%

Home Center/Hardware 9.00%

General/Discount/Club 4.88%

Specialty Store 6.50%

Grocery/Drug 0.04%

Apparel Store 6.65%

RECEIPTED VERSUS NON-RECEIPTED RETURNSThe percentage of merchandise returned without receipts versus with receipts

was lower than in the previous surveys. In the 2007 survey, receipts did not

accompany 14% of returns compared to 25%, 19%, and 20% in prior years.

There was a wide difference in receipted versus non-receipted returns between

categories (see table above).

Key Findings

Process, Opportunities, and Observations Retailers consistently recognize the opportunity to reduce the cost of fraudulent

returns, and their sense of urgency remains elevated. In this years survey,

nearly 70% of the respondents indicated that it is an important issue to their

company, and the majority of retailers (64%) report that focusing on reducing

refund fraud is a high priority.


4/15

However, there is clearly a performance gap because two-thirds of retailers

believe that their current return policies and systems are ineffective or only

somewhat effective in deterring return fraud/abuse. That indicates that

there is still much room for improvement on this issue.

Retailers continue to use a variety of methods, both manual and automated,

in order to identify bad returners and stop the attempted return transaction.

Tools employed include: abuser lists, exception reports, real-time fraud

detection systems, video analysis, and more. Despite all reported broader

efforts, retailers appear to be overly focused and more successful in stopping

return fraud and abuse on transactions where receipts are not provided.

The majority of retailers current processes and systems for reducing return

fraud continue to focus on non-receipted versus receipted returns. At the

same time, well over half of those surveyed have found forged receipts used

in committing return fraud, which may indicate a growing trend and result in

closer attention to the vulnerability of receipted returns.

Almost two-thirds of retail respondents indicated they were interested in a

shared database of customer return histories for return authorization (similar

to databases for check and credit authorization).

FinancialFindings

CATEGORY FIGURES PROVIDED BYTotal Returns 7.32% of sales 60% of respondents

Receipted Returns 85.9% of returns 76% of respondents

Non-Receipted Returns 14.1% of returns 76% of respondents

Fraudulent/Abusive Returns 8.23% of returns 73% of respondents


5/15

Participating Company DemographicsThis survey was conducted by telephone in February and March, 2008. Every effort

was made to include as many retailers as possible, across all vertical segments and

revenue sizes.

Retailers by Size

REVENUE PERCENTAGE

Under $1 Billion 18.2%

$1.01B to $2 B 18.2%

$2.01B to $4 B 9.1%

$4.01B to $8 B 15.2%

Over $8 B 9.1%

Dont know 15.2%

Retailers by Segment

APPAREL 15.2%

GROCERY/

DRUG 9.1%

SPECIALTY

STORES 36.4%

HOME CENTER/

HARDWARE 9.1%

DEPARTMENT

STORE 15.2%

GENERAL/

DISCOUNT/CLUB 15.2%


6/15

Current Return Processes

The following statistics provide a look at how the retail industry currently manages returns

1] MANUAL:Store level system based on return policy 58%

2] AUTOMATED:

Electronic system used at point of return 42%

Out of which,

i) PACKAGE FROM VENDOR 43%

ii)DEVELOPED IN-HOUSE 50%

iii)OTHER 7%

KeyFindings

Although manual processes still outnumber, there is a growing movement (over the four

surveys)toward use of automated return authorization systems.

Vendor packages for returns are more prevalent in the specialty, apparel, and discount

segments, while in-house development leads in department stores and home centers.


7/15

DOES YOUR RETURN POLICY TAKE INTO ACCOUNT THE PRICE OF AN ITEM IN DETERMINING IF

THE RETURN WILL BE ACCEPTED?

RECEIPTED

YES 21%

NO 79%

NON-RECEIPTED

YES 30%

NO 67%

KeyFindings

Price is a less of a factor for returns without

receipts in this survey, which may indicate

that there are other systems that help

support decisions on non-receipted returns.

Management approval for returns varied

widely, from as little as $5 to a high of $500

on non-receipted and $1000 on receipted.

Several respondents indicated all returns

over $100 required management approval;

others stated that return acceptance

depends on where the purchase amount

fell after meeting several of (up to) 25

different criteria.


8/15

MORE SPECIFICS ABOUT PROCEDURES WITH RECEIPTED RETURNS:

Does the age of the receipt matter in making a return?

Do you tie receipted returns to the original receipt value?

Do you tie receipted returns to the original items on the original receipt?

KeyFindings

Receipt time limits ranged from as low as 5 days to as high as 90 days, with 30 days and 90

days

being the two most common time periods at 40% each.

For those retailers tying receipt value and line items to returns, all respondents indicated that

this was

done automatically versus manually.

All respondents that indicated they correlate returns to original items on original receipts can

look-up both item (sku) and item purchase PRICE.

DOES THE CUSTOMER NEED AN ID TO MAKE A RETURN?

KeyFindings

There is a dramatic difference between

receipted and non-receipted returns.

Comparing these results with the previous

surveys, there is a trend toward requiring

identification for all returns, especially the

non-receipted returns


9/15


10/15

DO YOU HAVE THE CAPABILITY TO SWIPE OR SCAN DRIVERS LICENSES AS PART OF YOUR

RETURN PROCESS? IF SO, DO YOU UTILIZE THAT CAPABILITY?

KeyFindings

Retailers that have the capability of scanning IDs are still in the minority, but grew over last

survey.

Significant use on both receipted and non-receipted returns mirrors an industry trend

towards

utilization of quicker and more accurate data capture techniques.

CUSTOMER INFORMATION CAPTURE:

Do you enter customer ID information into the POS/return system?

Do you enter the customers name, address, or telephone into the POS/return system?

KeyFindings

There is a dramatic difference between receipted and non-receipted returns.

Entering customer ID, especially on non-receipted returns, is trending up when viewed across

all

previous surveys.

Based on the results of this and previous surveys, there appears to be a trend away from

manual

collection of customer information and toward electronic capture (as described in the question

above).


11/15

Current Processes to Prevent Return Fraud and Abuse

The graphs below offer some insight into how retailers are presently addressing this

significant source of revenue loss.

DO YOU IDENTIFY BAD RETURNERS? IF SO, WHAT TOOLS DO YOU USE?

KeyFindings

Identifying bad returners is a common

objective across all retail segments.

It is so common, that nearly one-quarter

of retailers have created specific internal

terminology to refer to this type of returner

(i.e. fraudster, multi-returner, etc.).

Of those who identify bad returners, a wide

variety of tools are employed including: abuser

lists, exception reports, real-time fraud

detection systems, video analysis, and more.

HOW FREQUENTLY DO YOU STOP BAD RETURNERS FROM MAKING RETURNS?

KeyFindings

Retailers believe they are more successful in stopping return fraud and abuse in non-

receipted

situations, most likely because of a historical focus on that transaction type.


12/15

Impact of Return Fraud and Abuse

In addition to collecting information on current return systems and procedures, a

significant goal of the survey is to understand how retailers strategically view and

manage return fraud and abuse.

HOW IMPORTANT IS THE ISSUE OF RETURN FRAUD WITHIN YOUR COMPANY?

KeyFindings

Nearly 70% of the respondents indicated that refund fraud and abuse is an important issue to

their company.

HOW HIGH A PRIORITY IS REDUCING FRAUDULENT RETURNS FOR THE CURRENT YEAR?

KeyFindings

The majority of retailers (64%) focus on reducing refund fraud, which continues to be high for

the fourth consecutive survey.

HOW EFFECTIVE ARE YOUR RETURN POLICIES AND SYSTEMS IN DETERRING RETURN FRAUD?

KeyFindings

Two-thirds of retailers believe that their current environment is ineffective or is only

somewhat

effective, which indicates that there is still room for improvement in implementing systems and

programs to address this important, high priority issue.

3% of respondents did not answer this question.


13/15

ARE FRAUDULENT RECEIPTS A PROBLEM YOU HAVE IDENTIFIED IN YOUR ORGANIZATION?

KeyFindings

Well over half of the retailers are seeing

Fraudulent receipts used in committing return

Fraud. This is a growing trend that was

Reported in other industry surveys, and

Is likely due to increasing computer

Sophistication of thieves.

This receipt fraud trend may render

receipt-based (as opposed to customeridentification-

based) return authorization

systems more vulnerable to fraud.

This receipt fraud trend is contrary to

most retailers present return authorization

procedures that place more focus on

non-receipted returns as the primary source

of fraud.

Return Fraud and Abuse Prevention Outlook

It is interesting to look forward and see what the future might hold for preventing

fraudulent and abusive returns.

WHAT IS YOUR COMPANYS OPPORTUNITY TO REDUCE THE COST OF FRAUDULENT RETURNS?

KeyFindings

Almost half of the respondents believe theycan achieve return fraud reductions of more

than 30%.

3% of respondents did not answer

this question.

HOW INTERESTED WOULD YOU BE IN SEEING THE DEVELOPMENT AND USE


14/15

OF A RETURN AUTHORIZATION SHARED DATABASE SIMILAR TO A CHECK AUTHORIZATION

DATABASE?

KeyFindings

About two-thirds of respondents indicated

they were interested in a shared database for

return authorization.

WOULD YOU CONSIDER GIVING AN INCENTIVE AT THE POINT OF RETURN

TO YOUR BEST CUSTOMERS?

KeyFindings

Given that a majority of returns are made by honest customers,

retailers appear open to methods that not only prevent fraud and

abuse, but also reward good customers.

Other studies have shown that incentives such as this can add

incremental sales.


15/15

Conclusion:

Clearly, one way for retailers to increase their net revenue is to lower their

return rate, which currently averages a significant portion (7.32%) of retailers

gross sales.With industry-wide return fraud and abuse estimated to be in the

$15.5 billion range, retailers are looking closely at policies and procedures as well

as technology solutions that will help them reduce loss. Unfortunately, broad

policy-based returns initiatives can adversely impact good customers, not just

abusers, and consumer satisfaction suffers as a result. Technology is also a tricky

problem, since too restrictive a system risks alienating good customers, while one

that is too lax risks encouraging abuse.

This survey like the three prior indicates that most retailers are making

finding the right balance in their return processes a priority that they believe

will have a positive impact on their bottom line. It also highlights an on-going

performance gap, while some have made progress in implementing better programs,

many believe still more effective solutions can and should be developed, possibly

including a shared database similar to those used for check authorization.

Whether with a manual or an automated system, a retailers approach

to managing returns should be keyed on identifying all return customers

(receipted and non-receipted) and acting on their purchase and return histories.

Implementing the right technology, combined with employee training that

encourages diligent attention to the issue at the store level, will help combat the

growth of forged receipts and result in reduced return fraud and abuse leading

to lower return rates, increased net sales, higher profits, and improved customer

satisfaction.

rajesh mahajan _ maumita mam's project on customer returns

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