The Daily Bark from Milo.com

How Much Do Returns Cost Retailers Post-Holiday?

Posted: 30 Dec 2010 02:08 PM PST

According to the National Retail Federation, 2010 holiday sales (the 55 days covering November to December) are projected to be somewhere upwards of $447.1 billion. But, according to the NRF’s November press release, return fraud is expected to cost retailers about $3.7 billion—up from $2.74 billion last year. And regular non-fraudulent returns? About $45 billion. So where does that leave the retailers? Is the holiday season all it’s cranked up to be? Read on to find out more.

Types of Return Abuse

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The most common type of return abuse and fraud is, of course, stolen merchandise (93.5% of retailers reported this activity). “Wardrobing” is also fairly common—it’s a phenomenon where customers purchase a swanky dress or suit for a one-time event (a Christmas party, for example) and then return it on the day after Christmas or New Year’s. The word also applies to certain novelty or holiday items and electronics. The National Retail Federation reports that 60% of retailers have suffered this sort of activity this year—up from 49.6% in 2009. And 33.5% of retailers unknowingly accept counterfeit receipts or take back items originally bought with counterfeit money. The buyer gets real money in return and the retailer sees a loss in their year-end finances.

But there can be a fine line between return abuse and fraud and more innocent returns. Sometimes it’s hard to tell the difference, so holiday return policies try to make it clear.

Strict Return Policies

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10% of retailers are tightening their return policies for the post-Christmas season. Many stores—67% to be exact—ask to see identification before processing a return to track and curb the activities of “returnaholics.” Others are only offering store credit for returns, or charging a “restocking fee” for returned electronics. Still others refuse to process a return without a receipt, or have a “window” in place for returns, which expires after a fixed number of days.

But when do return policies go too far? The Columbus Dispatch quotes Joe LaRocca, the NRF’s “senior asset-protection adviser,” in a statement:

Retailers are still struggling to find the appropriate balance between providing stellar customer service for their shoppers while prohibiting criminals from taking advantage of lenient return policies…Combating this very costly problem helps retailers keep prices low but can unfortunately involve establishing policies that inconvenience honest shoppers.

But the National Retail Federation maintains that the stricter return policies are just good business:

We oftentimes forget to mention the lost sales opportunity surrounding return fraud. When merchandise is stolen from store shelves or unethical customers look to "rent" specific products, this causes a shortage of popular products. Frustrated consumers can alter their shopping patterns when stores are frequently out-of-stock on high-demand items. During a time when every dollar counts, retailers can't afford to lose good shoppers.

There’s no arguing that point. In a recession year, especially, stores need their sales to stimulate the local economy and protect their bottom line in order to stay in business. Consumer activists may complain, but it’s clear that most retailers are just trying to protect themselves through these policies.

Still, companies risk alienating customers by intensifying their return policies. The Wall Street Journal recently quoted Georgia State University Professor V. Kumar, “It is about time retailers started realizing they need to relax return policies…Psychologically, people perceive less risk in buying from retailers with more relaxed policies. It makes people buy more.”

The Naughty and Nice List

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Consumer Report’s “naughty and nice” list for 2010 sheds some light on retailers’ holiday return policies. On the nice list? Companies like Walmart, J&R and L.L. Bean. For Walmart, no receipt is needed, and cash refunds for items under $25 (and gift cards for those over $25) are readily processed. At J&R, if you buy a product and find a lower-priced version elsewhere, they’ll do their best to match that price. And L.L. Bean allows you to return anything, anytime, for whatever reason.

The naughty list: Comp USA and Verizon, for starters. Verizon’s termination fee for service is astronomically high and CompUSA has restocking fees of up to 25% of the original price of the item.

But remember—only 10% of retailers say they are buckling down on returns for the holiday season. For the most part, retailers are loosening return policies to remain competitive with online stores that charge no shipping fees and promise more shopping flexibility. For example, Best Buy eliminated its 15% restocking fee in December after it caused a storm of opposition on Twitter and Facebook. And, as a post-holiday present, Walmart and Target loosened theirs, too.

Biggest Return Day

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Christmas fell on a Saturday this year, so retailers lost the opportunity for a big sales day midweek. Many consequently pushed to incentivize Sunday shopping by extending hours and offering discounts; after all, even people who want to return items will want to browse around the store for post-holiday deals.

So is now a good time to return those unwanted or ungifted gifts? It seems to be the case, despite the new policies. In fact, 33% of retailers still say that they’re more flexible with returns during the holidays in order to accommodate more shoppers.

And the somewhat obvious tip for the most hassle-free returns? Make sure to bring your I.D, receipt and original packaging—completely unused items have the best chances of being refunded without any charges or fees.