Retailers Drawing a Line on Returns

by Kristen Bellstrom
Source: Yahoo Finance

Marcy Tropin assumed returning $25 worth of clothes to Victoria’s Secret would be a routine errand. She wasn’t expecting a tete-a-tete with a security guard. But the New York City writer and yoga teacher says that when she offered a receipt, the clerk said she would also need to scan Tropin’s driver’s license into the store’s computer to prevent return fraud. Tropin refused, and, she says, an argument ensued. Enter the uniformed peacemaker for the store, which declined to comment about the incident. “All over five pairs of underwear,” says Tropin, who finally caved in.

As the holiday season approaches, some early bird shoppers are in for a surprise: The age of the easy return policy may be drawing to a close. After years of erratic enforcement, analysts say, more stores are toeing the line on returns and refunds, often asking for a laundry list of personal information before they’ll say yes. Fueling the change are new computerized tracking systems that seem part high-tech, part Big Brother and that can eliminate clerks as middlemen. Indeed, according to some estimates, half of retailers now use specialized databases that evaluate customers’ shopping habits before approving (or denying) a return. “Everyone is tweaking their rules and algorithms,” says Noam Paransky, retail strategist at consulting firm Kurt Salmon Associates.

It’s no mystery why stores are zeroing in on this area. Overall, about one purchase in 10 gets returned, and the rate has increased since the economy went downhill. Last year U.S. retailers reported nearly $43 billion in returned goods during the holiday season alone. And in a still shaky consumer-spending environment, stores have every reason to want to shrink those numbers, protecting themselves by “putting some science and some rules in place,” says Paul Jones, a former loss-prevention executive at retailer Limited Brands.

For their part, most retailers won’t discuss refund rules or tracking systems. Analysts do point out that with more technology involved, shoppers won’t be as much at the mercy of sales clerks. And some stores are using the systems to reward loyal customers, offering discounts on the spot. Still, critics say the changes can frustrate and confuse the uninitiated. For those who anticipate bringing a lot of gifts back to the mall, we offer a behind-the-scenes review of the new era in refunds.

Watching Your Shopping

The holy grail of returns, of course, is the elusive “anything, anytime” policy, and many venerable retailers once offered one. Stores like Talbots and Banana Republic would take back a sweater or a pair of chinos long after purchase, sometimes even if the receipt and tags were long gone. But in today’s environment, many stores will only grant refunds in exchange for information from the shopper, says Ken Morris, a principal at consulting firm Boston Retail Partners. Agree to give the clerk your cell number, he says, or your address (whether e-mail or snail-mail) and refunds are more likely; some may ask for credit card data, too. It’s a big shift in approach for the retailers, says Sherif Mityas, a partner in A.T. Kearney’s retail practice: “It’s all about information and how they use it right now.”

One reason for this is obvious: Retailers are on a constant quest to build their mailing lists, which have long proved effective at targeting customers. But many are also feeding this information into enormous databases, maintained with the help of big tech companies. (One of the largest works with nearly 15,000 stores in North America.) The systems create a data profile on each shopper, so clerks can immediately be told to deny a refund, or in some cases, reward good customers with incentives in hopes that they’ll spend their refund money in the store.

Whatever monitoring techniques they use, the retailers’ new vigilance can bite customers who least expect it. Stacey Chipka says she recently got a letter from handbag maker Coach, telling the Canadian shopper she’d been essentially put on a watch list, because she’d returned $3,600 worth of goods without receipts. Unlike other customers, she’d have to bring all her sales paperwork if she wanted another refund. A chagrined Chipka says she returned much less, and says Coach never warned her about any limits. (Coach declined to comment on Chipka’s case but says the company does “monitor excessive returns from a single source.”) “If you’re going to have a policy, show the policy,” Chipka says.

But that seems to be the last thing stores want to do. Of the nine retailers who spoke with SmartMoney about returns (several others declined to comment at all), none would go into any detail about their policies. As a spokesperson for sports retailer The Finish Line explained, even hinting at how their systems work would open the door to fraudulent returns, which cost the industry an estimated $9.6 billion last year. But this culture of secrecy can be maddening to customers: “Sometimes you’re going to get flagged even if you’re just an honest consumer,” says strategist Paransky.

In some cases, the culture of secrecy can work in shoppers’ favor. At Morris’s suggestion, we tested policies at several stores by making returns without a receipt. Of six stores we visited whose official policies stated they wouldn’t take returns without a paper trail, five credited us anyway — again, in return for a laundry list of personal information. At Yankee Candle Co., that included address and home phone; the company confirms that some information they collect is used for marketing purposes.

The Online Advantage

These changes only increase the appeal of shopping where returns are still easy to deal with: online. Web retailers face even higher return rates than their shopping mall counterparts — 10 to 20 percent of sales, according to Forrester Research. But big players like shoe seller Zappos accept returns a full year after purchase and have led others to be similarly generous. E-tailers figure they can afford it: Online shopping leaves an easy-to-follow electronic trail; retailers gather contact info automatically. And unlike in stores, where returns increase the burden on clerks, online return processing is now its own ultra-efficient, outsourced industry. At SkuTouch Solutions (“I get everybody else’s junk, that’s my business,” says president Doug Obershaw), the company’s six facilities can process 2,000 returns an hour, with items from up to 20 retailers arriving at a single warehouse. Employees uncrate the goods with no idea of what’s inside, scan a code on the box and follow a checklist of inspection criteria — if the item passes, it goes back to the retailer.

That’s the kind of quick work that brick-and-mortar retailers aspire to, but for now many are stuck between potential and glitch-prone reality. We were painfully aware of the gap when we returned some computer gear to a Wal-Mart. The good news: We could get a refund without our receipt. The bad news: No one currently at the store had the authority to help us. (The company says that only certain associates can access duplicate receipts.) The result: a three-hour wait.