Loss Prevention,
Auditing & Safety Conference 2009
Title Sponsor:
Unlocking the Value of Returns
Speaker Panel
 Dr. Read Hayes – Director, Loss Prevention Research Council
 Libby Rabun – Vice President, Loss Prevention, AutoZone
 Kevin Darnell – Director, Loss Prevention, Brown Shoe
 Mark Hilinski – EVP, Strategic Accounts, The Retail Equation
Interactive Question Placeholder
Q1: What retail segment are you?
1.
2.
3.
4.
5.
Large format/
Discount/Department
Grocery/Drug
Home Center/Hardware
Specialty/Apparel
Other
Q2: What is your return rate
percentage?
1.
2.
3.
4.
5.
0-5
6-10
11-15
16+
Unknown
Presentation of Return Fraud/Abuse
Survey Findings
Dr. Read Hayes – Director, Loss Prevention
Research Council
Customer Returns In The Retail Industry
 Conducted on 2007 data and released in 2008
 Survey Objectives
 Identify retail industry return rates including: total returns, receipted
returns, non-receipted returns, and the various forms of fraudulent and
abusive returns as identified by the retailers.
 Identify current practices in the retail industry for processing
customer returns.
 Identify issues related to customer returns that are common among
retailers.
 Share the results of the survey with the retail industry as a whole.
Key Finding
 $15.5 billion annual return
fraud and abuse problem
Key Metrics: Survey Averages




Return rate: 7.32%
Return Fraud/Abuse percentage: 8.23%
Percent returns non-receipted: 14%
Calculation:
$2.581 trillion total retail sales
* 7.32% total return rate
$188.9 billion total returns
* 8.23% fraudulent return rate
$15.5 billion return fraud and abuse
Demographics
Segment Specific Results
Findings: Importance
 70% of the respondents indicated that return fraud is an
important issue to their company.
 The majority of retailers (64%) report that focusing on
reducing refund fraud is a high priority.
 Almost half of the respondents believe they have the
opportunity to achieve return fraud reductions of more than
30%.
 Two-thirds of retailers believe that their current return
policies and systems are “ineffective” or only “somewhat”
effective in deterring return fraud/abuse.
Findings: Receipts
 The majority of retailers’ current processes and systems for
reducing return fraud continue to focus on non-receipted
rather than receipted return transactions.
 But, well over half of those surveyed have found forged
receipts used in committing return fraud.
 This may indicate a trend and closer attention should be paid
to the vulnerability of receipted returns.
Industry Trends
 Fraudulent and abusive returns are a persistent problem that
will likely get worse in this economy
 Across the board return policy changes affect good customers
as well as problem shoppers
 Intelligent solutions are available
Interactive Question Placeholder
Q3: Have you recently changed your
return policy in order to address
return fraud?
1.
2.
3.
4.
Yes, it’s changed
Planning to change
No
Unknown
Q4: With state of the economy, have
you observed incidents of return
abuse and fraud…
1. Increase
2. Decrease
3. Remain unchanged
How AutoZone is Addressing Return
Fraud and Generating Real Results
Libby Rabun – Vice President, Loss Prevention,
AutoZone
AutoZone – Returns Management
At AutoZone, our philosophy is…
“Always put Customers First!”
Before:
 Previous policy provided very limited scrutiny and controls
 No ID
 No receipt required
 Warranty data base acts as receipt
 Stated a 90 day return policy with little adherence
AutoZone – Returns Management
At AutoZone, our philosophy is…
“Always put Customers First!”
During (how did we convince our operations partners):
 Small pilot program
 Delivered proof of concept and initial ROI
 Internal IT solution with full system integration
 Consistent, deliberate communication & training plan
 Training, signage, brochures
 Gained and utilized field operators feedback
 Continuous analysis
 Proof is in the numbers
AutoZone – Returns Management
At AutoZone, our philosophy is…
“Always put Customers First!”
After:
 Our philosophy does not change
 New program began with clearly stated goals:
 Reduce overall return rate through
 Reduced internal related fraud and abuse
 Reduced external related fraud and abuse
 Increase net sales
 Increase Store Manager satisfaction
 Ensure consistent following of written returns policies
AutoZone – Returns Management
At AutoZone, our philosophy is…
“Always put Customers First!”
After:
 We now:
 Reserve the right to limit a return regardless of receipt
 Ask for ID
 Ask for receipt
 Still use transaction file and warranty data base
 Use third party to review authorization requests and
respond with approval, warning, or denial response
AutoZone – Returns Management
Control versus Program Stores
Control stores:
Returns Rate
-15.16%
bps.
-6
Rate Reduction
-0.4%
Program Stores:
Returns Rate
-14.41%
bps.
-75
Rate Reduction
-4.9%
AutoZone – Returns Management
Customers’ Responses to AutoZone's
Overall Return Policies & Ease of Returning
**All KPIs remained flat or showed improvement
AutoZone – Returns Management
The best is yet to come!
 Override percentages began at mid 90’s
 Majority of stores on program for less than 9 months
 Currently at 43% override percentage
 Weekly KPI reporting
 On-going communication plan
 Continuous ROI analysis
AutoZone – Returns Management
 Quotes from SVP-Stores
Interactive Question Placeholder
Q5: Is reducing return rate on your
current initiative list?
1.
2.
3.
Yes
No
Unknown
Q6: Have you performed an analysis
to see if high returns correlate to
high shrink?
1. Yes
2. No
3. Unknown
Example of Return Fraud Solutions in
Action
Kevin Darnell – Director, Loss Prevention,
Brown Shoe
Return Authorization at Brown Shoe
 2006 Rollout
 Information captured
 ID
 Name
 Phone Number
 Address
 Reports
 Compliance Reports
 Internal/External
External Fraud
• 49 Total Returns
• Returns at 6 different
stores
• $2,328 in returns
Internal Fraud – Our Challenge
 Tie the Return Data with Exception Reporting
 Write Exceptions with in the Software:
 No ID Swipe
 No ID Entered
 Different Name / Same Address
 Same Name / Different Address
 Refund % to Sale by Cashier
Video Overview
 The subject “Jason” had been with the company for 6 weeks
(3 weeks running the register)
 The 3 weeks he was working the refund % to sale went from
8% to 30%
 89% of all refunds did not have the required Return
Information (No ID Swiped or Entered)
 50% of the information that was entered was fictitious
 After the interview “Jason” agreed to make a post interview
video to be used for awareness orientation for new managers
and the Loss Prevention industry
Make The Right Choice
(Play video)
Interactive Question Placeholder
Q7: What is the leading factor keeping you from implementing a
return authorization solution?
1.
2.
3.
4.
5.
Cost
Customer Service
Store Operations changes required
Too many other projects
Other
Possible Solutions to Address Return
Fraud and Abuse
Mark Hilinski – EVP, Strategic Accounts, The
Retail Equation
Solutions
 From the LPRC survey:
 Retailers continue to use a variety of methods, both manual
and automated, in order to identify “bad returners” and stop
the attempted return transaction.
 Tools employed include: policy changes, abuser lists, exception
reports, real-time fraud detection systems, pos receipt
validation, video analysis, and more.
Recommendations
 Ask for an ROI. Reducing fraudulent returns is a measurable
action and should come with a documented ROI.
 Think twice before you let a restrictive return policy impact
your good customers.
 Fraud occurs in both receipted and non-receipted returns.
 Do your research yourself; other functional areas do not
always think like a loss prevention expert when selecting
solutions.
Questions?