How two retailers changed their return policy without alienating good customers

7 Comments | This entry was posted in Education, Events, Loss Prevention, Retail Companies, Retail Trends

It’s a dilemma that has faced all retailers: How do we create a return policy that deters dishonest people while providing a service to our best – and most loyal – customers? After today’s return fraud session, I was even more acutely aware that this question has no easy answer and is one of those pervasive predicaments that keep executives up at night. Bruce Pyke, DVP of Loss Prevention and Security at Bon-Ton Stores and Ray Cotton, Director of Security Operations at Orchard Supply Hardware, spoke this afternoon about how their respective companies took the plunge into a return policy change – and how it impacted customers in the process.

Here’s the problem: Nearly all customers are honest, and nearly all customers will need to make a return at one time or another. But that doesn’t necessarily mean retailers should embrace all returns with open arms. Because while most customers are very good – as in the words of a famous nursery rhyme – when they are bad they are horrid. (One example: A single person in Florida traveled up the East Coast as far north as Maine returning electric razors at Bon-Ton stores. The grand total? $12,000 in returns – to the same guy – in 10 days. Prior to its change in policy, Pyke said, “you could take the same receipt and return something 100 times. We were the easiest target in town.”)

Cotton said Orchard Supply Hardware was having similar issues. Four years ago, he said, “we had no return strategy. You could dig up your neighbor’s plant and bring it in and we’d probably refund you. We took back anything and gave cash back – if they told us what it was, we’d believe them.” Cotton said it wasn’t unusual for customers to return “never-used” weed whackers and lawnmowers – with gas still in the tank.

It was clear to each LP professional that the company was hemorrhaging money through return fraud. But figuring out the problem was the easy part. Both executives acknowledged that selling a return policy change to senior management was a gigantic hurdle. Understandably, senior management was concerned about sending away honest customers. They also didn’t have a grasp of how damaging – and costly – the return fraud problem was.

But if executives understand one thing, it’s numbers – and, in this case, the numbers didn’t lie. “I’ve seen one person who has made 170 returns,” Pyke said. “When I started showing this to our vice-chairman, he couldn’t believe it.”

Still, convincing company executives at many different levels was a process, Cotton said. He first found it was beneficial to speak to the business owners in a language and metrics they understand: “Let them know the impact on company and bottom line.” He also suggested using a pilot to generate and validate financial assumptions, including the current return rate versus the expected rate as well as associated dollar savings. A bit of advice, he said, “Don’t rush the pilot. You’re going to be under a lot of pressure to make a quick decision. Don’t rush it. Go through the 60 or 90 days and most importantly, have your own accountants check it.”

When all else fails, Pyke said, start small. After a six-year process, the company rolled out its first return policy change last October, requiring customers to present identification when making a return. To date, Pyke said, “that’s 12,000 returns that didn’t even get started because they didn’t have an ID. “

For each company, the pay-off has been huge. Its new policies have saved Bon-Ton between $400,000 and $800,000 a month since implementation and employee return fraud has also declined sharply. Orchard Supply Hardware has also benefited – the company has experienced over a six percent reduction in net returns and managed to improve the speed of a return transaction by 18 seconds (certainly something that those post-Christmas shoppers can appreciate!).

As for customer complaints? Pyke said Bon-Ton had a phone number on the back of receipts in case aggravated customers wanted to complain about a bad experience or find a higher-up to plead their case. After 500,000 returns since the new process was implemented, the phone rang once: It was a store employee just checking to see if the number worked. “It is right to be conservative, and we are,” Pyke said. “You don’t want to turn off good customers, but here’s the secret: customers are used to a return authorization process.”

Sound too good to be true? There’s one caveat. Both retailers, along with an executive from the Retail Equation, cautioned that this is not as simple as merely making a change to the return policy. Taking a look at metrics, evaluating the “good vs. bad” returns, and implementing a pilot program are all important measures before making any company-wide decisions. Because inevitably, if your change in policy is simply turning off your best customers without isolating your worst, all the savings in the world may not make up for the losses.

Posted in: Education | Events | Loss Prevention | Retail Companies | Retail Trends and tagged , , , , , , ,
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6 Comments

  1. avatar HeatherS
    Posted June 15, 2010 at 11:45 am | Permalink

    “After a six-year process, the company rolled out its first return policy change last October, requiring customers to present identification when making a return.” Really? It took SIX YEARS and the ID thing is all they came up with? Most shoppers expect to show ID when returning something, so why was this such a big deal and why the huge delay? I clicked on this story expecting to be enlightened. Instead, it feels like it could’ve been written in the late 80′s.

  2. Posted June 15, 2010 at 1:17 pm | Permalink

    Heather, I didn’t intentionally sell Bon-Ton short in the write-up, but perhaps it came across that way. Asking for ID was the first step the company took to their return policy, but they have since implemented many other protocols to prevent return fraud in their stores. Bruce Pyke went over many of those specific steps in yesterday’s session.

  3. Posted June 15, 2010 at 1:59 pm | Permalink

    Great topic for blogging, Ellen. Most people don’t realize the scope of losses retailers incur from this issue. Over $10B last year in the U.S.!
    I just blogged on this topic, and the strategies taken by Bon-Ton, in greater depth on our blogsite: http://central.fraudfighter.com/fraud-fighter-blog/ . I’d welcome your comments!

  4. avatar g. thomas
    Posted June 15, 2010 at 8:30 pm | Permalink

    Maybe I’m missing something here.
    I shop with cash.
    If a person returns an item with a valid receipt why in the world would that
    person have to show ID ?
    You don’t have to show ID when purchasing the item, why then with a return ?
    I’ll say this. The first time I’m asked for ID in any store when I have a return and wasn’t
    asked for ID when I purchased the item will be the last time I’m ever in that store.
    If I am ever asked for ID when purchasing anything in any store will also be my final
    visit to that store.
    LP professionals can pound salt. If I pay cash and the product proves faulty, it will
    be returned. Cash only and without ID.

  5. avatar David
    Posted June 21, 2010 at 12:45 pm | Permalink

    To G Thomas:
    My guess is the guy returning the electric razor had a receipt that showed he paid cash. These guys are professional thieves and know how to work the systems. I’ve busted dozens of these type of people over the years.

  6. avatar John
    Posted June 26, 2010 at 12:41 pm | Permalink

    Mr. Thomas, I can appreciate your concern with the request for ID related to cash tendered transactions. Merchants and businesses make every effort to deploy customer centric programs that concentrate on creating a positive Customer experience. Unfortunately, there are times where we as merchants have to take measures and deploy programs to not only protect our goods and services, but also our Customers.

    The reality of our world today is that retail and the business community at large has become an even greater focus of the criminal element. Those that choose this path focus there energy’s on manipulating and identifying weaknesses within the established protection models and exploit them.

    The result, we all lose! Consumers suffer higher prices, government suffers reduced tax revenue, business suffers reduced profitability, shareholders suffer reduced dividends, business associates suffer lost jobs and so on. This cycle impacts us all and causes us to have to rethink our approach to what is necessary to protect our businesses and our Customers.

    I can assure you that the majority of merchants and businesses that you do business with do everything in their power to protect you and your information. These programs are meant to allow us to continue to do business while still maintaining a level of protection to ensure we are not taken advantage of.

    The primary goal of the criminal element that focuses their energy’s on acts of fraud and theft for profit is to obtain cash, which in turn directly supports and enables other criminal activities, such as drug manufacturing and trafficking, organized crime, home invasions, robberies, etc…

    I hope that this at least provided some insight into what challenges we as merchants and businesses are up against. You have every right to want to protect yourself and as well you should make every effort to do so. In the end my hope is that the next time you are asked for ID you will at least know that we are trying to protect the cycle of commerce and with your support and understanding we are one step closer to combating an issue that certainly affects us all.

One Trackback

  1. [...] Bruce Pyke, DVP of Loss Prevention and Security at Bon-Ton Stores and Ray Cotton, Director of Security Operations at Orchard Supply Hardware, spoke about how their respective companies took the plunge into a return policy change – and how it impacted customers in the process.  A nice summary of their presenation can be found here. [...]

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