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Loss Prevention

Renovating the Returns Process

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Finding the right balance between customer service and fraud prevention is key when it comes to returns management. One particularly knotty dilemma is determining how best to handle customer returns that lack a receipt. According to NRF’s 2012 Return Fraud Survey, retailers estimate that 13.4 percent of returns made without receipts are fraudulent.

Yet, it’s not uncommon for frequent — and honest — customers to forget or misplace their receipts. To distinguish these customers from would-be fraudsters, Jacksonville, Fla.-based Stein Mart implemented tools and processes that allow it to better determine which non-receipted returns come from loyal, honest customers, and which are likely to be suspicious.

Several years ago, the retailer discovered that criminals in Texas were making photocopies of receipts and returning items that had been stolen, getting cash in return, says Ed Flanagan, Stein Mart’s director of investigative support. At the time, Stein Mart had no system in place that allowed the retailer to determine if an item being returned had already been returned. In all, the fraudsters were able to steal more than $30,000 over a period of several months.

That was sobering enough. But, as CIO Andrew Black points out, “The ones you catch make you afraid of the ones you didn’t.”

A policy-driven solution
Not long after that, Stein Mart began working with Oracle’s Retail Returns Management solution, Black says. A primary goal was reducing the risk of illegitimate returns, but the retailer also wanted to improve its data collection.

A retailer’s best customers often make more returns than other shoppers, simply because they’re making more purchases. Any savvy retailer wants to know when to accept those returns. “If you have good data, it’s easier to say yes to the return,” Black says.

Another objective was enabling sales associates to process legitimate returns as easily and quickly as possible. “The faster you can do it, the happier the customer is,” Black says.

Stein Mart management also wanted to boost the consistency with which returns were handled. “When you don’t have a system to enforce or execute policy, you can get highly variable results,” as sales associates and store managers will then use their own judgment, Black points out. While that’s to be expected, it can lead to differing ways of handling similar transactions.

Working with Oracle’s system, Stein Mart can more effectively track and manage its returns. Management has defined the number of non-receipted returns it will accept within a 45-day period, as well as the maximum number overall. Once a customer reaches this threshold, in terms of either the number of returns and/or their dollar value, the system won’t allow a sales associate to accept any more without a receipt.

The Retail Returns Management solution is part of Oracle’s suite of retail architecture, says general manager Mike Webster, and is typically deployed by retailers that generate more than $500 million in revenue annually. Because most retailers want a balance between customer service and fraud management, the solution is policy driven, he says — retailers can customize policies for each customer segment, so that the system guides the sales associate through the appropriate process.

It does this by assessing the various elements of a return, including the customer and her buying and return history, and the type, value and condition of the item itself. Very loyal customers who make frequent purchases and occasionally return items can be treated differently than customers who constantly buy and return items: The former might be able to make returns without a receipt, while customers in the latter category may be denied the privilege. “This allows retailers to express their customer service strategy to the customer and manage fraud,” Webster says.

Once the transaction is complete, the solution can update the information across multiple systems. “As soon as a return is made, the information is integrated to the POS, then inventory, and then it can go into the merchandising system and update that,” says Webster. As a result, the solution can “simplify the customer and associate experience and IT architecture.”

In addition, because the solution is built around a central database that provides visibility to all transactions, a customer can make a purchase at one store and return the item at another, Black says.

A few tweaks
Most retailers using Oracle’s Retail Returns system license and deploy it on their own premises, Webster says. Stein Mart is deploying the solution within its own data centers; Black says that he’d be leery of running this sort of application on a software-as-a-service basis because “there’s a lot of customer data in there.”

The implementation period covered about eight months, and the system required a fair amount of tweaking: Early in the process, it became clear than many shoppers came into the stores without receipts, but were more interested in exchanging the product rather than getting credit or cash back. While these initially were counted as “strikes” against the customer, Flanagan and his team later removed these transactions from the database used to determine which shoppers and returners might be running up against the returns limit.

Similarly, they removed from the database returns of less than $50, Flanagan says. “We’ve tried to scale it to target the type of people we want to keep out of the store.”

Webster says that minimal training is necessary for store-level implementation, since the solution automates the return process for sales associates. “It gives step-by-step instructions,” he says.

When Stein Mart implemented the system, management waited to see if sales associates would receive any pushback from customers. “It didn’t happen,” Flanagan says. The retailer received very few complaints, in part because it didn’t focus on “customers who don’t do a great job of keeping their receipts,” he says. Instead “the system is intended to catch habitual refund fraud artists.”

While fraudulent returns are a serious challenge, most returns actually include a receipt or the store associate can look up the purchasing card, Black says. If an associate is able to find the receipt by looking through the store’s database of credit, debit or loyalty card transactions, the return is treated as a receipted return.

Among commonly realized benefits of the system are its ability to enhance inventory and stock control, ensuring that an item being returned was legitimately purchased and that the return meets any criteria set by the retailer.

In addition, the solution can boost sales associates’ productivity, making the returns experience easy and quick, Webster says.

Flanagan says Stein Mart’s “shrink is certainly lower since we implemented the tool,” and now is either industry-leading or very close.

“By taking the refunder out of the store, we’re also taking out the potential shoplifter,” he says. “We feel this system fits our culture and heritage. We’re servicing our good customers and chasing out the bad guys.”