Off the Shelf: The Retail & CPG Blog

With a robust forecast for 2010 Holiday season retail sales (pegged to grow at 3.5-4% YOY Src: International Council of Shopping Centers) it's clearly one of the good times for retailers. With ever increasing product variants seeking to satisfy consumer demand and with ever increasing expectations of customers who are prone to dissatisfaction with slightest changes in product, retailers are faced with a problem of that of how to handle customer returns - more so the Returns Policies and Returns Fraud - which is assuming larger proposition.

With online retailers providing customers with better return policies (to tide over the fact that buyers have very less or no opportunity to touch or feel the product they are buying before it reaches them), and the customers propensity to buy more from retailers with more relaxed return policies (Src: Study Published in MIT Sloan Management Review by Dr. V.Kumar Georgia State University Professor), it's really a double whammy for brick and mortar retail chains.

On one hand they are faced with a problem of better managing customer psychology (having flexible returns policies in a bid to become consumer friendly) to drive more sales and profits and on the other hand is the problem of Returns Fraud which includes (but not limited to)

·         Credit card chargeback

·         Returning Stolen Merchandize

·         Wardrobing

According to a recent NRF Survey on Returns Fraud, the retail industry is expected to lose $17.7 Billion in 2010 up from $14.8 Billion in 2009, a growth of 19.6% YOY. The problem becomes more magnified during the Holiday season with growth in Returns Fraud estimated at $3.7 Billion for 2010, up from $2.7 Billion in 2009 (growth of almost 37% YOY).

So how can retailers respond to the threat of Returns Fraud and still be able to maintain flexible returns policies thereby enticing consumers?

Here is a quick look into some of the recent trends/initiatives that I'm already noticing in this area

1.       To increase more sales and to better manage customer psychology some retailers could alter or are already altering return policies in the following ways

·         By Increasing the return period (say from 15 days to 30 days)

·         Removing or reducing restocking fees (from 20% to 10% or nil)

·         Having product category wise return policies ex: Electronic Items could have stringent return policies compared to apparel/toys

·         Offer store credits for merchandize returns without a receipt

·         Actively offer recommendations for replacement item for returns

Some noteworthy examples of policy changes in 2010 includes (src: www.consumerworld.org)

-          Macy's 180 day return policy was changed to unlimited for most items with a receipt

-          Office Max relaxed its return policy on Opened Digital Cameras which previously were not returnable with a 15% restocking fee

-          Best Buy eliminated its 15% restocking fee on Electronics

 2.       On the fraud prevention side, here is a quick look at some of the trends

·         Simplify returns process and encourage replacements

o    1-800-customer service

o    Online web based returns system (for online purchases from a retail chain) which could match the return item against the purchase history.

o    Integrate returns process across channels to provide flexibility for cross channel returns  (ex: buy online return at store or vice versa)

These measures could help dissuade customers from resorting to frauds as barriers to returns are removed.

·         Implement technology driven solution to Track returns transactions to determine whether some consumers are abusing the returns system/process. Mechanism to filter out such consumers whose returns frequency is high (basically abusing the system) and decide on a different exception process.

Will these and few other initiatives help retailers counter returns fraud (at least to an extent) and still be able to maintain consumer friendly return policies thereby turning a threat into an opportunity? Let's wait and watch as retailers internalize these initiatives/trends over a period of time.