Fraud plagues retailers in Chattanooga and nationwide

Fraud plagues retailers in Chattanooga and nationwide

December 26th, 2011 by Joan Garrett McClane in News

As consumers suffer from buyer remorse this holiday season and return more merchandise than ever before, retailers are scrambling to stop fraudulent returns, which also are up this year, a national report shows.

Nearly 13 percent of retailers said they will tighten their return policy after Christmas to try to curb return fraud, according to a recent study by the National Retail Federation.

The days after Christmas will be an especially busy time for returns as people bring back items that weren't the right color or size or ones they simply didn't like.

"Those who think they will be able to get away with manipulating a company's return policy will be sorely disappointed," said Joe LaRocca, senior asset protection adviser for the National Retail Federation, the trade organization for retailers. "Retailers have been putting checks and balances in place to prevent people from taking advantage ... which raises prices for honest shoppers."

One of the measures is asking for photo identification with returns, which 62 percent of retailers now require, the annual study shows.

In 2011, retailers estimate that 2.89 percent of returns with a receipt were fraudulent. Of returns without a receipt, 14.02 percent were estimated to be fraudulent, according to the National Retail Federation.

Fake receipts are used. Some return stolen merchandise or merchandise that was used and not defective. Others return merchandise that was purchased with fraudulent or stolen money. Eight-nine percent of stores in the study reported incidents in which employees participated in return fraud in the past year.

"Thieves are always innovating," said Mark McKnight, marketing director of the local outdoor retailer Rock/Creek, which has had issues of return fraud in the past few years. People will buy something from another retailer, then try to return it at Rock/Creek, he said.

Managers also are wary of stolen merchandise returns and the possibility of an employee sending goods out the back door to a friend, who then brings it into the store as a return.

"We don't like to think about it," he said. "But it happens places."

The store now requires receipts with returns and checks people's identification against a computer record of the purchase. They don't require a driver's license, he said.

If something is returned with a receipt and there is no record of the purchase in their computer, a red flag goes up, McKnight said.

But the biggest problem for Rock/Creek and many other retailers during and after Christmas - their busiest time of year - is in-store theft.

Recently, he said employees found a customer stuffing a jacket down his pants, and at least every two weeks they have to prosecute someone for shoplifting.

At the Hamilton Place store, theft has become such a major issue that the store has hired a security guard to stand watch.

"Shoplifting is through the roof right now," he said. "And we prosecute 100 percent of the cases."

Prosecuting cases of shoplifting and return fraud incur cost, but as overall returns skyrocket, the cost of repackaging and restocking returned merchandise also goes up.

In the past five years, the amount of merchandise returned annually jumped from $169 billion, 7.26 percent of all sales, to $217 billion, 8.92 percent of all sales.

Many shoppers want a different color or a different size. With electronics, they may be confused by the directions.

A recent study by the Consumer Electronics Association showed that 38 percent of consumers returned items for the same make and model.

"What the industry has found is that when products are returned [consumers] they say it doesn't work," said Chris Ely, manager of industry analysis at CEA. "They find it difficult to set up or are confused by it. They think it's broken, but it's not. Something wasn't downloaded or they didn't understand the instruction."

Target, one of the largest retail chains, with several locations in Chattanooga, has tried to be sensitive to the topsy-turvy nature of consumer decision-making.

It allows returns without a receipt for up to $60 worth of merchandise a year, said Antoine LaFromboise, a spokesman for Target.

Above that, which in many cases would include electronic purchases, a receipt is required.

"A vast majority of returns are completed as intended," he said.