What Happens to a Company When Return Fraud Goes Unchecked?
Without proper policies in place, businesses lose more than revenue
Businessowners know return fraud is bad – it leaves them with piles of defective merchandise, it leads to lost revenue, and it creates an environment of distrust between the retailer and the customer. But what happens to a business when it doesn’t do everything in its power to stop return fraud? How does it hurt the bottom line, and how does that impact reverberate through other parts of the business?
Inaccurate business indicators
Retail business owners depend on a lot of data to keep their companies afloat – sales, gross margin, inventory management, and profitability, to name a few
1. Return fraud impacts all of these, making them difficult to track and thus making it nearly impossible to gauge the health of the business.
2. Return fraud affects sales and profitability most directly. With each bad return, the company loses out on the original revenue and profit from the initial sale. But afterward, it takes manhours to restock the merchandise or prepare it for liquidation.
3. Concerning inventory management, companies might get back items in rough condition or they might not get back the right item at all (e.g. tag switching).
4. Inventory tracking, which is a critical tool to keep the store stocked, is suddenly incorrect, and without the proper guardrails in place, it’s difficult to fix.
5. Additionally, return fraud affects the business’ contribution to state and local taxes. Estimates suggest that states lose up to $1.4 billion annually because of fraudulent return activity.
Cost-cutting
To compensate for lost revenue, retailers often cut costs. This means slashing in-store and corporate headcount. In 2017, return fraud cost U.S. retailers between 569,000 and 775,000 jobs.
This is in addition to all the jobs being lost due to bankruptcy declarations and store closures as a result of unfavorable economic conditions.
Tough environment for honest customers
One bad apple really does spoil the bunch. To offset lost revenue due to rampant return fraud, retailers place the cost burden on the customer. This often looks like increased prices and an abundance of less appealing (returned or defective) merchandise on sale racks.
In some cases, companies overcorrect and institute highly restrictive return policies. These policies are off-putting to the bulk of customers who were abiding by the previous set of regulations.
Inability to compete
Winning in the current global marketplace requires innovation, and it takes money to innovate. But it’s hard to stack innovation capital if return fraud isn’t under control. Effective efforts require up-to-the-minute knowledge about the latest trends and schemes in loss prevention. If a company isn’t following these headlines, they’re not preparing their business for success. If return fraud isn’t controlled, thieves can easily siphon money and product from stores and leave them without the necessary cashflow to one-up the competition.
It’s one thing to be aware of return fraud, but it’s a whole different ballgame to track it, stop it, and save a business.
Let re-turns.com do the hard work
One easy way to get return fraud under control is with re-turns.com, a universal product return system that does the hard work for your business. Every customer is assigned a Consumer Product Return Score or CPRN. Those with low CPRNs are highly likely to commit return fraud. You set the minimum CPRN you’re comfortable accepting. Then, the system tracks return activity and stats. Anyone with a CPRN below your threshold will be denied when making a return at your store.
Even without being an expert in retail fraud, you can stop it and reduce the negative impact on your brand. Find out more about how you can fight return fraud at re-turns.com.
