What are the consequences of return fraud?

What are the consequences of return fraud?

Without proper policies in place, businesses lose more than revenue.

Businessowners know return fraud is terrible – it leaves them with piles of defective merchandise, leads to lost revenue, and 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

  • Return fraud impacts all of these, making them difficult to track and thus making it nearly impossible to gauge the business’s health.
  • Return fraud affects sales and profitability most directly. With each lousy return, the company loses out on the original revenue and profit from the initial sale. But afterward, it takes hours to restock the merchandise or prepare it for liquidation.
  •  Concerning inventory management, companies might get back items in rough condition, or they might not get the correct item at all (e.g., tag switching).
  • Inventory tracking, a critical tool to keep the store stocked, is suddenly incorrect, and without the proper guardrails in place, it isn’t easy to fix.
  • 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.

 

return fraud cost U.S

Cost-cutting

Retailers often cut costs to compensate for lost revenue, slashing in-store and corporate headcount. In 2017, return fraud cost U.S. retailers between 569,000 and 775,000 jobs, in addition to all the lost jobs due to bankruptcy declarations and store closures due to unfavorable economic conditions.

Challenging environment for honest customers

One bad apple does spoil the bunch. Retailers place the cost burden on the customer to offset lost revenue due to rampant return fraud, and 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 most customers abiding by the previous 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.
Practical 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 its business for success. When not controlling return fraud, thieves can easily siphon money and product from stores and leave them without the cash flow to one-up the competition.
Being aware of return fraud is one thing, but it’s a different ballgame to track, stop, and save a business.

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