The High Cost Of Retail Fraud

Being a guy, I’m not really into going to the mall. But, as a former grocery store employee, (and current potato chip salesman) I can spend hours in grocery stores, just walking around, checking the space out. It fascinates me, because I understand the grocery business. I understand the thought process behind displays, I understand the countless things the store does to maximize impulse purchases. I get why the store puts the milk in the very back of the store, and I know why baskets are strategically placed where they are. I spent many years working in a grocery store, and I’m still very interested in the business.

One of the things I learned in the business were the various forms of return fraud. In the grocery business, there’s one main way people try to game the system. They’ll find a receipt in the parking lot, hopefully one with an expensive product on it. (Razor blades were a favorite) The thief would come back into the store, go find the item on the shelf, and then “return” it. If you live in a big center and make your rounds, it’s possible to make this form of retail fraud a somewhat lucrative activity, once you look past the dishonesty of the whole thing.

While this form of retail fraud is a pain for retailers, it pales in comparison compared to a much larger problem.

De-Shopping

Retail Fraud

The concept of de-shopping is simple. People (usually women) go into a store and buy something. It could be anything, but it’s usually clothes. The item gets used, the little black dress gets worn out to the party. The next day, she returns the dress, claiming the fit wasn’t up to par, or something. The customer may even pick a seam or deface the item in some other way, thereby increasing her chance of a successful return.

Clothing retailers have been forced to liberalize their return policies, partially because of increased competition, and partially because shopping patterns have changed. Would you buy clothing online without a very generous return policy? Would you even buy clothing from a store in the mall without knowing you could return it?

De-shoppers have to do things intelligently, or else the store catches on to their tactics. They’ll spread their purchases across many different stores of the same chain, that way they aren’t going back to the same store over and over again. Or, they’ll bring a whole bunch of clothes back in one shot, ready to do whatever it takes to get them returned, including making a scene.

According to this article, this cost American retailers 14.4 billion dollars in 2011 alone. This is becoming a major problem.

This Affects You

In the industry, this is all part of shrink. Shrink also includes the stuff people steal the old fashioned way, as well as products that get damaged, stuff that “accidentally” gets broken open and eaten by staff, and just plain old fashioned stealing from the till. The industry standard is that 5% of sales are lost due to shrink.

Do you think retail is just going to sit back and let this happen, without doing anything about it? Of course not. They want to make money. So they do what any logical business would do – they just increase the price of their products. Everything has just gone up 5% across the board.

Because of all this retail fraud, you pay a higher price for your groceries, clothing, and everything else you buy. It may seem like an innocent thing when you return something that you bought, but it’s actually part of a huge problem that costs retailers billions.

What’s the solution to this problem? If it persists, retailers with generous return policies may scale those policies back, maybe shortening the return window or only allowing certain customers store credit. Most retailers have tightened their return policies on things like electronics, because those things are typically the target of return fraudsters.

Marks and Spencer, a UK clothing chain, has introduced a dedicated return desk. The thought process is that a separate returns area will cut down on the people who make a scene in an attempt to get their return approved by a manager just looking to shut them up and keep things moving.

What do you guys think? Is it a smart decision for retailers to treat their customers like potential fraudsters? Or is this just a cost of doing business, especially when traditional retailers have to compete with online stores?

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10 Responses to The High Cost Of Retail Fraud

  1. Modest Money says:

    I think part of the reason that stores often have generous return policies is because they don’t want to get hit with credit card chargebacks which can hurt them even more.

    My exgirlfriend’s boss went as far as buying shoes for their staff for a conference and then he went and returned them all after the weekend. The store at least protected themselves a bit by only offering store credit and not a cash refund. Still, it’s a pretty sneaky move.

    Then there’s the problem with how you get treated when you are making a legitimate return. I went to go return a hoodie that I had gotten as a gift that didn’t fit, but didn’t bother picking off the cat fur or folding it all nice. You should’ve seen them examine it and actually sniff it. She even had to call over a manager. They made me feel like I was pulling some big scam, but the damn thing just didn’t fit.

    • Teacher Man says:

      Typical problem in life right? The people that have the time to think about how to game the system ruin it for everyone else just trying to get on with their life.

  2. Thad P says:

    This is a larger problem than just retail fraud. It is a part of a general decline in honesty and trust. If enough people play the fraud game, ultimately the ones who truly suffer are those of us who play by the rules.

  3. krantcents says:

    Integrity and character is an old concept. Part of it may be the crappy economy, however I think it is a case of family values that is missing today.

    • Teacher Man says:

      I get the general sense that you have much more life experience than I do KC, so I will bow out to your opinion on this. Why do the basic values that used to tie society together seem to be disappearing so quickly today?

  4. I am with Krant on this one! All this is a matter of integrity. I was scandalised when I first arrived in the UK (from communist Bulgaria) and was told by somebody that she buys dresses for an occassion and then takes them back. I blame consumarism: and many of our brothers and sisters personal bloggers preach consuming at lower price (or by methods discussed by you) rather than what really makes sense: limiting our consumption. Rant over and have a nice weekend all.

  5. I never knew that “de-shopping” was such a big problem. I’ve heard about chicks who wear something once and then return it, but I had no clue how common it was. Personally, I’ve never done it before and couldn’t imagine ever doing it. It sure sucks that we all have to pay for their stuff.

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