During the holidays retailers often see an influx of fraudulent returns. In December, 2015, the National Retail Federation reported that 3.5 percent of retailers’ holiday returns were fraudulent, up slightly from 3.0 percent the previous holiday season. The NRF estimates that holiday return fraud costs retailers $2.2 billion dollars in 2015. The holiday season isn’t the only time retailers find themselves at risk from return fraud. Nine in 10 retailers say they have experience the return of stolen merchandise. Another three-quarters of retailers report “wadrobing” (the return of used, non-defective merchandise). Another 71 percent of retailers experienced return fraud made by known organized retail crime groups. Retailers estimate that 10 percent of returns made without receipts are fraudulent.
Retailers have taken extreme measures to reduce fraud including the adoption of RFID tags. Radio Frequency Identification (RFID) is an emerging technology that enables contact-less and wireless information access via radio waves for identifying, capturing, and transmitting information from tagged objects to enterprise systems. According to researchers at Penn State University, the retail sector will comprise 44 percent of the global RFID market, which includes volume shipping and RFID tags, by 2016.
In a study entitled, “A Comparative Analysis of RFID Adoption in Retail and Manufacturing Sectors”, Penn State researchers discovered that RFID tags actually do very little to prevent fraudulent returns. The survey notes that though retailors saw a 21.31 percent increase in efficiency in inventory management, security against theft and fraud only increased by 16.38 percent through the use of RFID tags. The study further notes that 17.20 percent of retailers see the high cost of RFID as a major impediment to implementation.
As retailers look for new and innovative ways to combat retail return fraud, they are increasingly turning to novel solutions like Shoppler to reduce their losses. Shoppler allows retailers to sell their products via an app or the Shoppler website. Customers can choose from a range of products, in a variety of colors, sizes, and styles. These items are delivered, in person, on the same day by a Shoppler driver. The customer is able to try on their purchases in their home. The customer buys what they want and the driver returns the rest. Shoppler helps prevent retail fraud in several ways:
Wardrobing: Customers using Shoppler will be expected to return unwanted items the same day, greatly reducing the opportunity for “wardrobing” or “renting” merchandise.
Returning Stolen Merchandise: Customers using Shoppler can only return what they’ve had delivered. There is no opportunity for the customer to return a stolen item as that item would not be present in their Shoppler account.
Receipt Fraud: As customers return their items via the Shoppler delivery system, there is no opportunity for falsifying receipts, returning goods purchase on sale from a different store at a lower price, or to purchase goods online for the purpose of returning them in store for a higher amount.
Price Arbitrage and Price Switching: Shoppler eliminates opportunities for customers to place higher prices labels on merchandise with the intention of returning the items at a high price than purchase. All purchase information in securely saved in the Shoppler app. Customers have no opportunity to purchase differently priced, but similar-looking merchandise for the purpose of returning the cheaper item as the expensive one. All Shoppler transactions are transparent to the store, the customer, and the driver.
Switch Fraud: Switch fraud is common in housewares and electronics departments where customers purchase working items and return damaged or defective identical items already owned. Given the immediacy of Shoppler returns, it is unlikely that customers will be able to commit switch fraud.
Currently, merchandise delivery services like Shoppler are only available in larger cities like Los Angeles. As retailers become reacquainted with home delivery services, we predict there will be a rise in their use. Aside from the obvious convenience for the customer, Shoppler and services like it provide fewer chances for retail fraud and increase sales by allowing customers to touch, feel, and “own” the merchandise in their home before making their purchase decision.