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Use a Total View of Your Customer to Manage Retail Returns and Fraud

This is an archived post from OrderDynamics, now Tecsys retail division.
Use a Total View of Your Customer to Manage Retail Returns and Fraud Retail Returns and Fraud Major Concerns for All Retailers, But It’s Not All Bad News. It is not surprising that retailers are concerned about returns. After all, a customer return is the loss of a previous sale and a direct hit to the margin and profit. Retailers’ concerns for returns are based on three main issues: Meeting customer expectations Costs associated with legitimate returns Costs of fraudulent returns The motivation behind retail businesses accepting returns is - to keep their customers coming back. Customers value a lenient return policy, preferably free, and an easy return process. This is a part of the well-documented “Amazon effect”; and as a result, returns have become a crucial component of the overall relationship between the customer and the retailer. However, even though revenue is reversed with a return, it should be emphasized that when it is dealt with well, a return creates an opportunity for another sale. This is true especially when that return is completed in-store.

Returns Done Well Create Opportunities

Recall that The Rise of the Superconsumer Research Report found that the majority of online shoppers (70% of Superconsumers and 58% of Occasional Click & Collect shoppers) prefer to return goods in-store. The research also found 53% of Superconsumers and 43% of Occasional Consumers would purchase additional unplanned items if they returned merchandise in a physical store. The same report shows that the Superconsumer actually prefers returning items in-store, and will purchase several additional items, spending $40 on average, when returning an item while they are in a brick and mortar store. Comparatively, Occasional Consumers will spend about $37, when returning items in-store - even though they may prefer to return items through the mail. That is cause for supporting, if not encouraging customer returns in-store. [caption id="attachment_12420" align="aligncenter" width="666"] Source: The Rise of the Click and Collect Superconsumer.[/caption] So, what does a retailer need in order to deal with a return well and achieve this level of customer experience? Retailers need to ensure that they invest in returns management technology. A dynamic system provides all the information necessary to expedite the return, including a full view of the customer and an accurate picture of their inventory. This is achieved through a dynamic distributed order management (DOM or OMS) system. The right OMS will help to process your customer returns quickly and effectively. It can help get good products back onto the shelf for resale. OrderDynamics’ solution, a centralized returns management system, provides a single view of your customer. This lets you better understand your customers, accept returns without receipts, process partial returns and adapt to their changing behaviours. The Store Associates can then reward the right behaviours, based on information easily provided by the centralized customer data. Improving the customer experience, in a relevant way, creates loyalty.

Legitimate Returns Management Solutions

The other, more pressing, issue regarding customer returns is cost. Let’s discuss the cost of legitimate returns first. The costs incurred with valid customer returns include restocking expenses. For instance, shipping and perhaps discounting, as well as the associated labour costs – as in repackaging and handling costs. As described in the Financial Times, the cost of returning an item to the supply chain can be double what it cost to deliver it, if it is not done efficiently. Returned merchandise could pass through up to 7 people before it is available for resale. During the holiday season, warehouses may be full of stock to deal with the seasonal rush. During the holiday season, returning items can start six weeks after purchase. That may result in surplus stock, having to sell at a discount, and loss of margin. Omni-channel retail facilitates the processing orders and legitimate returns from any retail location. With a robust DOM system, the store associate should be able to login to a screen and process the return. They will take back the item and provide a refund. The same order management system should manage online or complex electronics or mechanical products just as well. The OMS should be able to delay repayment until the return is verified, meeting your retail policies. A robust OMS should do all that plus offer communication during the process - to keep the customer updated at the start of the return, provide order tracking number notification, and a return complete notice when the process is complete. OrderDynamics system allows for full or partial returns. If the merchandise is in a sale-able condition, then get it processed, credited, and back on the shelf for resale, while updating available-to-sell inventory in real-time.

Systems Need Solid Processes

Remember good systems need solid processes to work well. Retailers need to create a favorable returns policy and a positive returns experience to encourage customers to return and buy again. Best practices for returns management include: Accept in-store returns for online sales to encourage more shopping Make the return experience great Let customers make returns without receipts Allow free returns shipping Give the customer partial return options Show your returns policy clearly online For more details and suggestions, see OrderDynamics Returns Management Brief.

Retail Return Fraud on the Rise

That brings us to the final and increasingly more concerning returns issue – retail fraud. A National Retail Federation (NRF) survey estimated that retail return fraud costs all US merchants as much as $15 billion in 2017. According to NRF 2018 Organized Retail Crime Survey, retailers say an average 11 percent of purchases are returned each year, with an estimated 8.2% of those returns being fraudulent.

Retail Fraud Manifests in These Major Forms:

According to Legal Line, a Federal Not-for-profit Corporation, the common types of retail fraud are: Brick-and-Mortar Return Fraud includes shoplifting, switching price tags, or short-term buying/renting or wardrobing. For example, buying a dress for a special occasion and returning it after wore it. This retail fraud also includes returning items purchased with stolen credit cards or counterfeit money, or buying a new item to return an old or broken item for a refund. Online Return Fraud can occur when the retailer ships goods, the items are received without a signature. Then, the customer either requests a refund stating they did not receive the merchandise, or they buy the goods with stolen cards and later sell the items online. Similarly, there is friendly fraud.  It occurs when a consumer makes an online shopping purchase with their own credit card, then asks the bank to remove the charge, saying they did not receive the goods. Internal or Employee Return Fraud can occur when staff abuse their employee discounts. For retailers who have two or more stores, this can also happen when an employee buys discounted items at one location and someone else returns it without a receipt to another location for a full refund. Or employees can just take an item off the shelf and return it through a fictitious customer.

Use Single View of Customer to Mitigate Fraud

Retailers require a single view of customer history to help reduce retail fraud. A centralized system of record lets stores associates review customer records for a historical view of returns abuse. It also let them process customers more quickly. This is so because receipts are not required, and the transaction prices are visible on the screen. As a system of record, the OrderDynamics OMS won’t let customers return items they did not buy. With a full record of transactions, there are no more mistakes like refunding full price for items purchased on sale. In addition to a DOM system, retailers must track and monitor their returns, so that they can see abnormal activity and reduce fraud. As Peter Drucker once wrote:

“What gets measured gets managed”.

Retailers can monitor and manage: Category reports (to see which categories are returned most often) Manager overrides High-value returns Returns abuse (chronic returners)

Retain Relevant Customer Experience while Managing Returns

Remember that it is vital to continue to keep customers in mind when implementing policies, creating processes and investing in systems to manage retail returns. TransUnion says it well: “If a fraud prevention solution effectively reduces the 1.58% of the revenue retailers lose to fraud, but loses equivalent or greater revenue by diminishing the customer experience — which results in a higher rate of shopping cart abandonment — it’s not really a solution at all.” OrderDynamics can help the retailer see a full view of customer history. This helps the sales associate or manager recognize abnormal e-commerce transactions. Abnormal e-commerce transactions include: Abnormally large purchases A high number of small transactions Usage of an unusual number of different credit cards The right order management system provides real-time insights across all channels. It does not slow down transactions or cause unnecessary friction, which enables a better customer experience and fewer false declines. The total view of the customer helps the retailer offer relevant customer experiences while managing inventory efficiently to mitigate the negative impacts of retail returns.   Author: Karen Stephenson is an Omni-Channel Consultant at OrderDynamics. She has over 20 years' experience successfully leading finance, system implementations and organizational change in medical, technology, and financial industries, as well as not-for-profit boards. Karen has a BA in Finance & Economics from Western University, and a Global Executive MBA from Rotman, University of Toronto.
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