Fighting Return Fraud with RFID

This holiday shopping season, retailers expect to be hit with $3.5 billion in losses due to return fraud.  A growing problem, fraudulent returns will total about $9.6 billion in losses over the twelve-months of the 2013 sales year.

Annually, about 7.3% of total retail returns involve some type of deception or criminal activity–from returning used and stolen goods to switching tags on sale merchandise and altering e-receipts from online purchase. Following the prime gift-buying holiday season (November – December), this soars to 8.8%.   It’s a tricky problem that conscious retailers are attempting to solve without impacting the lenient return policies they offer as a way to strengthen customer loyalty.

According to the National Retail Federation (NRF), almost all retailers reported incidents of return fraud last year.  Here’s a look at what retailers experienced:

• Return of stolen merchandise- 97% of retailers
• Return of merchandise purchased by fraudulent means (stolen credit cards, forged checks, etc.) – 84% of retailers
• Employee fraud or collusion – 81% of retailers
• Wardrobing – 61% to 65% of retailers
• Return using counterfeit receipts- 46% of retailers
• Return using altered e-receipt from online purchases – 19% of retailers

Wardrobing is in Fashion

Some customers think of retail stores as their personal “closet” for evening clothes.  Their technique consists of purchasing expensive clothing to wear to a special event, wearing the items, then returning the worn items for full refund.

Illegal “wardrobing” activity has increased 40% over the past four years.  It isn’t just women’s evening wear, men’s special-occasion clothing is also a prime target.

Selective “borrowing” is now spreading to fine jewelry, expensive tech equipment such as video cameras, home decorations and even tools. Recently, one of our staff members heard someone brag about buying expensive earphones at Wal-Mart to use on a flight to Denver, then returning them after the trip.

Price Arbitrage

This method of cheating involves buying two items that are similar, switching the labels, and returning the cheaper items using the tag and receipt of the more expensive one.  Some bold shoppers even try to get a full-price refund for merchandise purchased at a discount, or marked-down price. There’s more.  When retailers offer a buy-one-get-one-free deal, some shoppers attempt to return the free item for full price. Other criminals will actually buy an item, then steal an exact copy of that item and use the purchase receipt for a refund.

Like other forms of Retail Crime, return fraud can be both external and internal, with one in three fraudulent returns perpetrated by store employees.  Historically, internal return fraud costs retailers more, as insiders tend to target more valuable merchandise.

RFID Helps Retailer Fight Back

RFID intrinsically helps combat, and even eliminate fraud.  When deployed, RFID assigns a unique code to every item in the store. The tracking data makes it impossible to falsify receipts, or to switch items. The code printed on the receipt has to match the item, or the return transaction is denied.

RFID technology captures the precise time and location of a theft as well as vital data about the stolen merchandise, including the quantity, color, size and SKU number for each item. RFID then adjusts the store’s inventory.  Should the shoplifter attempt to return any merchandise, the RFID in the price tag will identify the items as stolen, and reveal the precise time and location for the theft. If the merchandise or receipt have been tampered with, or falsified, RFID will detect the counterfeiting effort. Criminals can be apprehended on the spot, with ample evidence for prosecution. Once shoplifters and organized retail crime rings encounter RFID, just knowing the technology is in place can be a deterrent.

Cutting Retail Crime by 75%

RFID has proven to be one of the simplest and most effective strategies for ensuring tight control over inventory flowing in and out of a store, and for discouraging internal theft and fraud.  In fact, retailers such as Gerry Weber and American Apparel who deployed RFID for inventory control discovered that as a substantial bonus “benefit”, RFID reduced theft and fraud by up to 75%.

Utilizing item-level RFID, alone or integrated into other EAS systems, has proven to deliver fuller, more intelligent data on every stolen or lost item than other loss prevention solutions available.  In tracking what happens to an item at each and every point in the supply chain — from the manufacturing source to the customer — RFID wraps a tight security blanket around the entire retail supply chain.   With accountability on every item from RFID tagging, retailers are experiencing significant declines in internal theft as well as processing errors.

How are you gearing up for the busiest shopping and most active retail fraud months of the year?   If you are using RFID already, we’d like to hear how it has impacted your loss control.  If not, contact us for more information and a complimentary consultation, success@trucount.com.