Retailers lose billions when crooks exploit return policies

Macy's shoppers
People wait to cross the street after shopping at Macy's department store in this 2012 file photo.
Andrew Burton/Getty Images

Retailers are bracing for an annual surge in shady returns following the end of the holiday shopping season, when more goods are brought back to stores without receipts, and about one in seven of those transactions turns out to be fraudulent.

Even though merchants are worried about their bottom lines, they say they are inclined to reject only the most blatant scams they detect, for fear of displeasing honest customers.

Some merchants, like Macy's and Eddie Bauer still say customers can get their money back anytime. Others set limits. For Target, it's 90 days. At Best Buy, 15 to 45.

Such polices sit well with Angie McKinley of Bloomington, who was shopping at the Mall of America recently.

"They seem to be fair overall," she said. "There are a few stores that are more liberal than others, I think."

Those liberal policies make her more inclined to shop with those retailers.

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But generous policies cost retailers big time.

Bill Sawyer of Woodbury says he's seen retailers get stiffed.

"I've been in Home Depot when someone returned a box full of rocks, and got full credit for a device," he said.

Even when someone brings back actual merchandise, merchants can't always sell the goods at full price, if at all. The industry estimates retailers lose $9 billion a year to amateur and professional crooks who get money back for stolen merchandise or exploit return policies in other ways.

Neither Target nor Best Buy would comment for this story. But in a recent conference call with industry analysts, Best Buy CEO Hubert Joly said customer returns, replacements and damages amount to 10 percent of the company's revenue.

Rich Mellor, vice president of loss prevention for the National Retail Federation, says every retailer wants a reputation for fair, honest. and hassle-free returns.

"In the criminal community the word gets around that it's a bit more hassle-free if you go to this particular retailer," he said.

But retailers also have tools to sort out legitimate from questionable returns when a customer arrives without a receipt. Loyalty programs like those at Target and Best Buy, and the growing use of credit and debit cards allow companies to electronically look up lost receipts.

About three-quarters of retailers require an ID when someone wants to turn over merchandise with no receipt. Some retailers will only offer store credit, not cash without a receipt. And people with a pattern of suspicious returns may get a warning to mend their ways or be turned away.

It's not just people who return stolen goods who get on the wrong side of retailers, said Laura Gurski, a retail consultant with A.T. Kearney in New York. There are customers who feel it's OK to essentially borrow things from a store, buying a dress or, say, high-end TV intending to use the item briefly and then return it, she said. Gurski says some high-end clothing stores known for lenient returns are taking a hard line on what's known as "wardrobing."

"In the criminal community the word gets around."

"Once something has a tag removed or it is visibly worn, a lot of the retailers are shifting their policy to not take that particular item back," she said. "Bloomingdale's in particular has identified right on the tag that if you remove it they are not going to take the item back."

On expensive dresses, the retailer places conspicuous tags so the dress can't be worn without the tags showing.

Might the honest consumer get tagged as a potential fraudster? No, says Garth Gasse, director of Asset Protection at the Retail Industry Leaders Association, a trade group.

"If an honest consumer makes returns and does so within the guidelines and policies of that specific retailer, it's really not going to be a problem with the number of returns that they do," he said.

But returns made by dishonest customers can end up raising the prices honest folks pay.

EXAMPLES OF THE RETURN FRAUD AND ABUSE PROBLEMS

Wardrobing or renting: Buying merchandise for short-term use with intent to return, such as video cameras for weddings, big-screen TVs for a Super Bowl game or a dress for a special occasion

Employee fraud: Returning stolen goods assisted by employees for full retail price

Receipt fraud: Using falsified, stolen, or reused receipts to return merchandise

Returning stolen merchandise: Shoplifting with intent to return for full retail price

Price switching: Putting lower priced tags on merchandise with intent to return for full retail price

Price arbitrage: Buying differently priced, similar-looking items and returning the cheaper one as the expensive item

Source: The Retail Equation. The company helps retailers monitor returns for abuse behaviors.