2014
ANNUAL RETURN SURVEY
Consumer Returns
in the Retail Industry
Introduction
The Retail Equation (TRE) is pleased to incorporate the results of the National Retail Federation
(NRF) 2014 Return Fraud Survey into the 2014 Consumer Returns in the Retail Industry report. In
an environment that shows a 20 percent increase in fraud compared to last year, retailers need a
benchmarking point. This executive summary document provides return-related information that
retailers may use to help compare and improve their business processes. Report objectives included:
◾◾ Identify US and Canadian retail industry return metrics—total return amounts, receipted/
non-receipted percentages, various examples of fraudulent and abusive returns, and fraud
by tender type, as identified by retail respondents.
◾◾ Uncover other shortfalls caused by return fraud; for example, lost retail jobs and sales taxes.
◾◾ Understand current practices in the retail industry for processing merchandise returns, both
brick and mortar and online.
◾◾ Compare the relative importance of return fraud and related shrink issues.
◾◾ Generate industry discussion regarding best practices for accepting customer returns and
controlling return fraud and abuse to maximize profits and minimize losses.
Consumer Focus
Preventing fraud is only one of the challenges being contemplated at the retail return desk;
improving the shopping experience is an equally important trend. Therefore, differentiating the
consumer experience during the return process—such as offering “hassle free” returns—is often
under consideration as a potential revenue driver. The ability to offer more flexible and lenient
returns, while still mitigating the risk of fraud and abuse, is critical.
Participating Company Demographics
The NRF Return Fraud Survey was conducted by the National Retail Federation during
October–November 2014 by polling senior loss prevention executives at 60 retail companies.
Executives from all segments of retail including discount stores, department stores, drug stores,
supermarkets, and specialty stores completed the survey. Some responses may represent multiple
brands within a single company.
The Retail Equation would like to thank all of the retailers who participated in this year’s NRF
Return Fraud Survey. You will notice that no retailer names are mentioned, per the NRF and the
sponsoring company’s commitment to maintain confidentiality of each organization’s data.
2
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY
Annual US Merchandise Returns and Return Fraud
METRIC
2013
2014
NRF retail industry sales(1)
$3,108
$3,194(2)
Returns as a percent of total sales
8.60%
8.89%
Amount of merchandise returned
$267.3
$284.0
Percent of returns without a receipt
14.4%
14.1%
Return fraud as a percent of total returns
3.4%
3.8%
Estimated amount of fraudulent returns
$9.1
$10.8
Return fraud and abuse as a percent of total returns(3)
6.1%
6.2%
Estimated amount of return fraud and abuse(3)
$16.3
$17.6
20%
higher
<
than
last year
Source: National Retail Federation 2014 Return Fraud Survey. October & November 2014.
T he National Retail Federation’s US retail industry sales figure includes most traditional retail categories including non-store, auto
parts and accessories stores, discounters, department stores, grocery stores, and specialty stores, and excludes sales at automotive
dealers, gas stations, and restaurants. Sales and returns are reported in billions of dollars.
(2)
2014 retail sales (in billions) estimated by NRF.
(3)
Return fraud and abuse estimates are derived from trends established in previous years of the Consumer Returns in the Retail
Industry report.
(1)
Key Findings
◾◾ NRF estimates that sales, return rates, and return fraud percentages are all up; therefore, return fraud
dollars increased 20% from 2013, to $10.8 billion.
◾◾ Total merchandise returns account for more than $280 billion in lost sales for US retailers. This size is
overwhelming; if merchandise returns were a retailer it would rank #2 on the Stores Top 100 retailers
list—three times the size of the current #2 retailer.
◾◾ The metric return fraud and abuse incorporates return abuse (sometimes called friendly fraud) and
generally averages approximately 2 to 3 percentage points higher than return fraud alone. This year
return fraud and abuse is estimated at 6.2% of all return dollars, meaning the amount of fraudulent
and abusive return dollars is $17.6 billion.
ANNUAL MERCHANDISE RETURN FRAUD AND ABUSE IS ESTIMATED
BETWEEN $10.8 AND $17.6 BILLION FOR THE US RETAIL INDUSTRY.
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY
3
US Holiday Returns and Return Fraud
METRIC
2013
2014
Amount of holiday merchandise returned(1)
$58.5
$68.8
Returns as a percent of holiday sales
10.1%
11.2%
Amount of fraudulent holiday returns
$3.39
$3.81
Return fraud as a percent of holiday returns
5.8%
5.5%
Source: National Retail Federation 2014 Return Fraud Survey. October & November 2014.
(1)
NRF US holiday sales are defined as retail industry sales in the full months of November & December.
Sales and returns reported in billions of dollars.
Key Findings
ll%
higher than
< last year
<
Holiday
fraud is 45%
higher than
the annual
return
fraud rate
◾◾ N
RF estimates return fraud during the holidays to be a staggering 45% above full-year rates. It is due in
large part to 1) elevated merchandise return rates—up more than 26% during holidays and 2) seasonal
hiring practices focused on part-time, less-experienced labor who therefore also may have less experience
in identifying fraudulent activity.
◾◾ According to an NRF consumer survey, one out of every three gift recipients (34.8%) returned at least
one item during the 2013 holiday season.
Holiday Return Policies
DOES YOUR RETURN POLICY CHANGE FOR THE HOLIDAY SEASON?
2013
2014
100
80
60
YES
28%
NO
72%
YES
30%
NO
70%
40
20
0
Source: National Retail Federation 2014 Return Fraud Survey. October & November 2014.
Key Findings
◾◾ Compared to last year, a lower percentage of retailers expect to keep their return policy unchanged
during the holiday season. Of those that made changes, 18.6% enact tighter policies and 11.9% loosen
their policies.
◾◾ According to an NRF survey released in December 2013, 90.5% of Americans feel retailers’ return
policies are fair.
The Retail Equation Conclusions
◾◾ The additional traffic during the holiday season is the time to make your customer service shine. Simple
consumer-friendly tactics, like extending return time periods, are good methods to attract new shoppers
and convert gift recipients. There are myriad ways to protect and manage risk without compromising
service at the return counter.
4
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY
Financial Summary of Return Fraud
and Abuse in the US
CATEGORY
PERCENTAGE
RATE
RETAIL
INDUSTRY
EXAMPLE
COMPANY
($1 BILLION
REVENUE)
Retail Sales
100%
$3,194,318,000,000
$1,000,000,000
Returns
8.89%
$283,974,870,200
$88,900,000
Receipted
85.9%
$243,934,413,502
$76,365,100
Non-Receipted
14.1%
$40,040,456,698
$12,534,900
Return Fraud
(low-end estimate)
3.8%
$10,847,840,042
Return Fraud and Abuse(1)
(high-end estimate)
6.2%
$17,606,441,952
RETURN FRAUD
AND ABUSE LOSS
PER $100
OF
SALES
OF
RETURNS
$3,395,980
$0.34
$3.82
$5,511,800
$0.55
$6.20
Source: National Retail Federation 2014 Return Fraud Survey. October & November 2014.
(1)
eturn fraud and abuse estimates are derived from trends established in previous years of the Consumer Returns in the Retail
R
Industry report.
The Retail Equation Conclusions
◾◾ Non-receipted returns account for 14% of all returns, but the pie charts on page 8 show the risk of fraud
exists in all return situations.
◾◾ As online sales continue to grow, most retailers allow customers to return merchandise purchased online
in their stores; however, they estimate 3.5% of those returns are fraudulent.
Lost US Jobs Impact of Return Fraud and Abuse
(1)
AVERAGE NATIONWIDE
RETAIL SALARY(1)
RETAIL JOBS LOST DUE
TO RETURN FRAUD
RETAIL JOBS LOST
DUE TO RETURN FRAUD
AND ABUSE
$28,378
382,255
620,414
alculated from retail direct jobs and income figures on nrf.com/advocacy/retails-impact,
C
source: National Retail Federation
The Retail Equation Conclusions
◾◾ R
etailers must offset the negative business impact of return fraud and abuse by increasing prices to
consumers and by reducing costs—which too often means a loss of jobs. At an average retail salary of
more than $28,300 per year, return fraud and abuse is costing retailers and American workers between
382,000 and 620,000 jobs.
◾◾ The table on the following page details lost retail jobs on a state-by-state level.
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY
5
Lost US Sales Tax
Impact of Return Fraud
and Abuse
MAP OF LOST STATE SALES TA X BY STATE
Legend
$0 Lost sales tax revenue
<$10 Lost sales tax revenue
$10–$24 Lost sales tax revenue
$25–$49 Lost sales tax revenue
$50> Lost sales tax revenue
Sales tax revenue in millions, based on high-end estimates
from table.
The Retail Equation Conclusions
◾◾ Because of the significant retail revenue losses
caused by return fraud and abuse, states are
losing a total of $663 million to $1,076 billion
in sales tax revenues at a time when state
budgets need it the most.
◾◾ For simplicity, this table lists only state
tax rates; the myriad county and local
taxes are not individually calculated. It is
estimated there are another $161 million
to $261 million lost at the local level due
to return fraud.
% OF
NATIONWIDE
RETAIL SALES(1)
SALES
RETURNS
Alabama
1.50%
$47,914,770,000
$4,675,253,049
Alaska
0.26%
$8,305,226,800
$810,377,195
Arizona
2.24%
$71,552,723,200
$6,981,711,220
STATE
Arkansas
0.91%
$29,068,293,800
$2,836,320,183
California
11.90%
$380,123,842,000
$37,090,340,856
Colorado
1.70%
$54,303,406,000
$5,298,620,122
Connecticut
1.25%
$39,928,975,000
$3,896,044,208
Dist. Of Columbia
0.15%
$4,791,477,000
$467,525,305
Delaware
0.37%
$11,818,976,600
$1,153,229,085
Florida
7.30%
$233,185,214,000
$22,752,898,172
Georgia
3.01%
$96,148,971,800
$9,381,674,452
Hawaii
0.50%
$15,971,590,000
$1,558,417,683
Idaho
0.51%
$16,291,021,800
$1,589,586,037
Illinois
4.05%
$129,369,879,000
$12,623,183,232
Indiana
1.99%
$63,566,928,200
$6,202,502,378
Iowa
0.92%
$29,387,725,600
$2,867,488,537
Kansas
0.79%
$25,235,112,200
$2,462,299,939
Kentucky
1.26%
$40,248,406,800
$3,927,212,561
Louisiana
1.33%
$42,484,429,400
$4,145,391,037
Maine
0.51%
$16,291,021,800
$1,589,586,037
Maryland
1.99%
$63,566,928,200
$6,202,502,378
Massachusetts
2.34%
$74,747,041,200
$7,293,394,757
Michigan
3.10%
$99,023,858,000
$9,662,189,635
Minnesota
1.80%
$57,497,724,000
$5,610,303,659
Mississippi
0.89%
$28,429,430,200
$2,773,983,476
Missouri
1.97%
$62,928,064,600
$6,140,165,671
Montana
0.36%
$11,499,544,800
$1,122,060,732
Nebraska
0.62%
$19,804,771,600
$1,932,437,927
Nevada
1.14%
$36,415,225,200
$3,553,192,317
New Hampshire
0.67%
$21,401,930,600
$2,088,279,695
New Jersey
3.12%
$99,662,721,600
$9,724,526,342
New Mexico
0.62%
$19,804,771,600
$1,932,437,927
New York
5.93%
$189,423,057,400
$18,482,833,721
North Carolina
2.89%
$92,315,790,200
$9,007,654,208
North Dakota
0.25%
$7,985,795,000
$779,208,842
Ohio
3.39%
$108,287,380,200
$10,566,071,891
Oklahoma
1.00%
$31,943,180,000
$3,116,835,366
Oregon
1.27%
$40,567,838,600
$3,958,380,915
Pennsylvania
4.07%
$130,008,742,600
$12,685,519,940
Rhode Island
0.34%
$10,860,681,200
$1,059,724,024
South Carolina
1.36%
$43,442,724,800
$4,238,896,098
South Dakota
0.32%
$10,221,817,600
$997,387,317
Tennessee
2.10%
$67,080,678,000
$6,545,354,269
Texas
7.49%
$239,254,418,200
$23,345,096,892
Utah
0.84%
$26,832,271,200
$2,618,141,707
Vermont
0.25%
$7,985,795,000
$779,208,842
Virginia
2.63%
$84,010,563,400
$8,197,277,013
Washington
2.26%
$72,191,586,800
$7,044,047,927
West Virginia
0.54%
$17,249,317,200
$1,683,091,098
Wisconsin
1.80%
$57,497,724,000
$5,610,303,659
Wyoming
0.21%
$6,708,067,800
$654,535,427
Total
(1)
(2)
6
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY
Source: National Retail Federation Source: Federation of Tax Administrators STATE SALES
TAX RATE(2)
RETURN FRAUD
LOW-END ESTIMATE(4)
LOST SALES
TAX REVENUE
LOST RETAIL
JOBS IN STATE(3)
RETURN
FRAUD/ABUSE
HIGH-END ESTIMATE(5)
LOST SALES
LOST RETAIL
TAX REVENUE
JOBS IN STATE(3)
4.000%
$178,594,666
$7,143,787
7,137
$289,865,689
$11,594,628
0.000%
$30,956,409
$0
942
$50,243,386
$0
11,583
1,529
5.600%
$266,701,369
$14,935,277
8,825
$432,866,096
$24,240,501
14,324
6.500%
$108,347,431
$7,042,583
4,315
$175,851,851
$11,430,370
7,003
6.500%
$1,416,851,021
$92,095,316
43,326
$2,299,601,133
$149,474,074
70,320
2.900%
$202,407,289
$5,869,811
7,183
$328,514,448
$9,526,919
11,659
6.350%
$148,828,889
$9,450,634
4,511
$241,554,741
$15,338,726
7,322
5.750%
$17,859,467
$1,026,919
649
$28,986,569
$1,666,728
1,053
0.000%
$44,053,351
$0
1,357
$71,500,203
$0
2,202
6.000%
$869,160,710
$52,149,643
30,278
$1,410,679,687
$84,640,781
49,143
4.000%
$358,379,964
$14,335,199
13,436
$581,663,816
$23,266,553
21,808
4.000%
$59,531,555
$2,381,262
2,068
$96,621,896
$3,864,876
3,357
6.000%
$60,722,187
$3,643,331
2,397
$98,554,334
$5,913,260
3,891
6.250%
$482,205,599
$30,137,850
16,842
$782,637,360
$48,914,835
27,335
7.000%
$236,935,591
$16,585,491
9,671
$384,555,147
$26,918,860
15,696
6.000%
$109,538,062
$6,572,284
4,695
$177,784,289
$10,667,057
7,620
6.150%
$94,059,858
$5,784,681
3,719
$152,662,596
$9,388,750
6,037
6.000%
$150,019,520
$9,001,171
5,980
$243,487,179
$14,609,231
9,706
4.000%
$158,353,938
$6,334,158
5,890
$257,014,244
$10,280,570
9,560
5.500%
$60,722,187
$3,339,720
2,303
$98,554,334
$5,420,488
3,737
6.000%
$236,935,591
$14,216,135
7,947
$384,555,147
$23,073,309
12,898
6.250%
$278,607,680
$17,412,980
9,357
$452,190,475
$28,261,905
15,187
6.000%
$369,095,644
$22,145,739
14,480
$599,055,757
$35,943,345
23,502
6.875%
$214,313,600
$14,734,060
8,500
$347,838,827
$23,913,919
13,796
7.000%
$105,966,169
$7,417,632
4,219
$171,986,975
$12,039,088
6,847
4.225%
$234,554,329
$9,909,920
9,134
$380,690,272
$16,084,164
14,824
0.000%
$42,862,720
$0
1,723
$69,567,765
$0
2,797
5.500%
$73,819,129
$4,060,052
3,068
$119,811,151
$6,589,613
4,979
6.850%
$135,731,947
$9,297,638
4,448
$220,297,924
$15,090,408
7,219
0.000%
$79,772,284
$0
2,591
$129,473,341
$0
4,206
7.000%
$371,476,906
$26,003,383
11,239
$602,920,633
$42,204,444
18,241
5.125%
$73,819,129
$3,783,230
2,820
$119,811,151
$6,140,322
4,577
4.000%
$706,044,248
$28,241,770
21,762
$1,145,935,691
$45,837,428
35,321
4.750%
$344,092,391
$16,344,389
13,198
$558,474,561
$26,527,542
21,421
5.000%
$29,765,778
$1,488,289
1,151
$48,310,948
$2,415,547
1,868
5.750%
$403,623,946
$23,208,377
15,588
$655,096,457
$37,668,046
25,301
4.500%
$119,063,111
$5,357,840
4,272
$193,243,793
$8,695,971
6,934
0.000%
$151,210,151
$0
5,436
$245,419,617
$0
8,824
6.000%
$484,586,862
$29,075,212
18,323
$786,502,236
$47,190,134
29,739
7.000%
$40,481,458
$2,833,702
1,439
$65,702,890
$4,599,202
2,336
6.000%
$161,925,831
$9,715,550
6,380
$262,811,558
$15,768,693
10,354
4.000%
$38,100,196
$1,524,008
1,609
$61,838,014
$2,473,521
2,611
7.000%
$250,032,533
$17,502,277
8,899
$405,811,965
$28,406,838
14,444
6.250%
$891,782,701
$55,736,419
31,357
$1,447,396,007
$90,462,250
50,893
4.700%
$100,013,013
$4,700,612
3,573
$162,324,786
$7,629,265
5,800
6.000%
$29,765,778
$1,785,947
1,084
$48,310,948
$2,898,657
1,759
5.000%
$313,135,982
$15,656,799
11,694
$508,231,175
$25,411,559
18,980
6.500%
$269,082,631
$17,490,371
8,153
$436,730,971
$28,387,513
13,233
6.000%
$64,294,080
$3,857,645
2,648
$104,351,648
$6,261,099
4,298
5.000%
$214,313,600
$10,715,680
8,889
$347,838,827
$17,391,941
14,426
4.000%
$25,003,253
$1,000,130
945
$40,581,196
$1,623,248
1,534
$663,044,903
$1,076,146,178
alculated from average retail salary figures, source: National Retail Federation, PricewaterhouseCoopers LLP, The Economic Impact
C
of the U.S. Retail Industry, October 2014.
(4)
Low-end estimates are derived from source: National Retail Federation 2014 Return Fraud Survey. October & November 2014.
(5)
High-end estimates are derived from trends established in previous years of the Consumer Returns in the Retail Industry report.
(3)
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY
7
Examples of Return Fraud
WHICH EX AMPLES OF RETURN FRAUD HAS YOUR
COMPANY EXPERIENCED IN THE PAST YEAR?
2013
2014
Return of stolen merchandise (shoplifting)
94.8%
92.7%
Employee return fraud or collusion with external sources
93.1%
81.8%
Return of merchandise purchased with fraudulent or stolen tender
69.0%
81.8%
Returns made by organized retail crime groups
60.3%
78.2%
Wardrobing or renting (returns of used, non-defective merchandise)
62.1%
72.7%
Returns using counterfeit receipts
29.3%
25.5%
Returns using e-receipts
15.5%
18.2%
< ORC
shows
30%
increase
from 2013
Source: National Retail Federation 2014 Return Fraud Survey. October & November 2014.
Key Findings
◾◾ NRF asked loss prevention executives about returns made by organized retail crime (ORC) groups, and
almost 8 in 10 say they have dealt with ORC return fraud, up 29.6% from last year.
◾◾ Merchandise purchased with fraudulent or stolen tender jumped 18.5% and wardrobing is up 17%.
◾◾ Employee collusion (improved 12%) and counterfeit receipts (improved 13%) showed positive
year-over-year changes.
The Retail Equation Conclusions
◾◾ For the 3rd year in a row, shoplifting and returning those stolen items took the top spot, impacting
almost every retailer surveyed (93%). This poses a potentially significant impact on shrink.
◾◾ While showing improvement, the connection between associates and return fraud/abuse (82%) still
presents a significant issue.
Analysis of Return Fraud by Receipt and Channel
PERCENT OF RETURNS WITH/WITHOUT
A RECEIPT THAT RETAILERS SUSPECT
ARE FRAUDULENT
DO YOU ALLOW CUSTOMERS TO RETURN
MERCHANDISE PURCHASED ONLINE TO
YOUR BRICK-AND-MORTAR STORES?
No
1.8%
Receipted Returns
85.9%
Non-Receipted
Returns
14.1%
Return fraud
as a percent of
non-receipted
returns
12.01%
Yes
87.3%
Return fraud
as a percent
of receipted
returns
1.53%
Source: National Retail Federation 2014 Return Fraud Survey. October & November 2014.
Don’t Sell Online
10.9%
Return fraud
as a percent of
buy online and
return in-store
returns
3.5%
The Retail Equation Conclusions
◾◾ It appears the presence of a receipt may cause it to be considered a valid return. This is a risk; TRE sees
many instances where systems and policies are being abused by shoppers with seemingly valid printed
and/or digital receipts.
8
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY
Current Return Processes
DOES THE CUSTOMER NEED AN ID TO MAKE A RETURN?
107%
100
higher than <
last year 80
60
Non-Receipted
Receipted
YES 71%
YES 26%
NO 74%
40
NO 29%
20
0
Source: National Retail Federation 2014 Return Fraud Survey. October & November 2014.
Key Findings
◾◾ 25.5% of retailers require an ID on receipted returns, an increase of 107% from 2013.
◾◾ From a separate question, 26% of retailers never require consumers to show an ID.
The Retail Equation Conclusions
◾◾ The change in collection of ID on receipted returns, in conjunction with the perception on the previous page
of less fraud on receipted returns, may indicate a growing awareness in the consistently high occurrences
of wardrobing/renting and internal/external collusion—both typically receipt-based types of fraud.
Return Fraud by Tender Type
COMPARED TO THE PREVIOUS YEAR, FOR WHICH TENDER T YPES HAS
YOUR COMPANY ENCOUNTERED A CHANGE IN RETURN FRAUD?
Gift card
fraud shows
a dramatic
increase
Cash
100
80
60
Increase
37.7%
0
Gift Card/
Merch. Credit
Increase
72.7%
Decrease
9.4%
N/A
7.5%
Credit Card
Increase
38.2%
No Change
45.5%
No Change
45.3%
40
20
<
No Change
14.5%
Decrease
1.8%
N/A
10.9%
Decrease
7.3%
N/A
9.1%
Debit Card
Increase
30.9%
No Change
49.1%
Decrease
7.3%
N/A
12.7%
Check
Increase
5.8%
No Change
51.9%
Decrease
19.2%
N/A
23.1%
Source: National Retail Federation 2014 Return Fraud Survey. October & November 2014.
Key Findings
120 primary payment vehicles, four showed a greater increase than decrease in return fraud.
◾◾ Across the five
In fact, fraud100
increases outpaced decreases by a wide margin.
80
The Retail Equation
Conclusions
60 are susceptible to return fraud; therefore, all should be considered when developing
◾◾ All tender types
a solution for fraudulent and abusive returners.
40
◾◾ Gift cards/merchandise credits are especially vulnerable because of their role in non-receipted return
refunds. Easily20liquidating gift cards to cash is a growing issue that needs to be addressed at point-of-return,
in online auctions, and even via new mall-based gift card kiosks.
0
cash
gift card
credit
debit
check
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY
120
9
Impact of Return Fraud and Abuse vs. Shrink Beyond reporting metrics, a significant goal of this survey is to understand how retailers view and
manage return fraud and abuse. How strategic is return fraud compared to something very well
known like shrink?
HOW IMPORTANT IS THE ISSUE OF SHRINK FOR YOUR COMPANY?
HOW IMPORTANT IS THE ISSUE OF RETURN FRAUD FOR YOUR COMPANY?
HOW EFFECTIVE DO YOU BELIEVE YOUR CURRENT RETURN POLICIES
AND SYSTEMS ARE IN DETERRING RETURN FRAUD?
5
(very
important)
5
(very
effective)
4.27
4.33
4.33
4
3.65
3
(somewhat
important)
3.36
3.55
3.31
3.25
3
(somewhat
effective)
2
1
(not very
important)
1
(not very
effective)
2012
Return Fraud
Importance
2013
Shrink
Importance
2014
Return Policy
Effectiveness
Source: National Retail Federation 2014 Return Fraud Survey. October & November 2014.
Key Findings
◾◾ Return fraud has gained in importance for the past 3 years.
The Retail Equation Conclusions
◾◾ Shrink will always be a key metric and has historically been a large focus for LP teams.
◾◾ Return fraud and shrink are correlated. In fact, in a study of retailers using TRE’s return fraud prevention
algorithms, retailers averaged 0.32% absolute shrink reduction and 12.95% relative reduction to shrink,
showing that a reduction in return fraud will lead to a reduction in shrink.
◾◾ Retailers’ belief that their current return policies and systems are only somewhat effective (3.31 out of 5)
in deterring return fraud shows there is much room for improvement in prevention performance.
10
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY
Annual Canadian Merchandise Returns and Return Fraud
METRIC
2012
2013
RCC retail industry sales(1)
$303
$310(2)
Returns as a percent of total sales(3)
8.6%
8.9%
$26
$28
4.2%
4.2%
$1.1
$1.2
6.0%
6.0%
$1.6
$1.7
Amount of merchandise returned
Return fraud as a percent of total returns(4)
Estimated amount of fraudulent returns
Return fraud and abuse as a percent of total returns(5)
Estimated amount of return fraud and abuse
T he Retail Council of Canada’s retail industry sales figure includes traditional retail categories and food &
convenience stores, and excludes automotive & gasoline. Sales and returns are reported in billions of dollars.
(2)
2013 retail sales (in billions) reported by RCC in Retail Fast Facts, February 2014.
(3) Returns as a percent of total sales is estimated from US figures. Source: National Retail Federation 2014
Return Fraud Survey. October & November 2014.
(4)
Return fraud figure reported in the 2012 Canadian Retail Security Survey from RCC and PwC.
(5) Return fraud and abuse estimates are derived from trends established in previous previous years of the
Consumer Returns in the Retail Industry report.
(1)
Key Findings
◾◾ This is the third year TRE has attempted to estimate the Canadian retail market for return fraud and
abuse. The calculations are based on a combination of statistics published by the RCC and estimates
from similar NRF surveys of US retailers. This methodology may change over time as it matures.
Financial Summary of Return Fraud and Abuse in Canada
RETURN FRAUD
AND ABUSE LOSS
PER $100
CATEGORY
PERCENTAGE
RATE
RETAIL
INDUSTRY
EXAMPLE COMPANY
($1 BILLION REVENUE)
OF
SALES
OF
RETURNS
Retail Sales
100%
$309,708,300,000
$1,000,000,000
Returns(2)
8.89%
$27,533,067,870
$88,900,000
Receipted(1)
85.9%
$23,650,905,300
$76,365,100
Non-Receipted(1)
14.1%
$3,882,162,570
$12,534,900
Return Fraud
(low-end estimate)
4.2%
$1,156,388,851
$3,733,800
$0.37
$4.20
Return Fraud and Abuse
(high-end estimate)
6.0%
$1,651,984,072
$5,334,000
$0.53
$6.00
Percent of receipted and non-receipted returns is estimated from US figures. Source: National Retail Federation 2014 Return Fraud
Survey. October & November 2014.
(2) Returns as a percent of total sales is estimated from US figures. Source: National Retail Federation 2014 Return Fraud Survey.
October & November 2014.
(1) 2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY 11
Lost Canadian Sales Tax
Impact of Return Fraud
and Abuse
% OF
NATIONWIDE
RETAIL SALES(1)
PROVINCE
The Retail Equation Conclusions
1.77%
$5,479,362,364
Prince Edward Island
0.41%
$1,259,206,790
Nova Scotia
2.81%
$8,704,328,009
New Brunswick
◾◾ Because of the significant retail revenue
losses caused by return fraud and abuse,
federal and provincial governments are
losing a total of $152 million to $218
million in sales tax revenues.
SALES
Newfoundland and Labrador
2.30%
$7,108,462,756
Quebec
21.90%
$67,835,362,340
Ontario
34.90%
$108,089,351,766
3.60%
$11,156,592,734
Manitoba
Saskatchewan
3.80%
$11,755,789,513
Alberta
15.14%
$46,890,217,493
British Columbia
13.01%
$40,295,003,002
Yukon
0.14%
$418,364,192
Northwest Territories
0.16%
$489,205,824
Nunavut
0.07%
$227,053,215
Total
(1)
(2)
Source: Retail Council of Canada Source: Retail Council of Canada
Lost Canadian Jobs Impact of
Return Fraud and Abuse
(1)
AVERAGE
NATIONWIDE
RETAIL SALARY(1)
RETAIL JOBS LOST DUE
TO RETURN FRAUD
RETAIL JOBS LOST DUE
TO RETURN FRAUD
AND ABUSE
$41,000
30,957
44,224
S ource: RCC “A Changing Retail Landscape: Secondary Research & Data Analysis—Detailed Findings,”
Nov. 2009
The Retail Equation Conclusions
◾◾ Retailers must offset the negative business impact of return fraud and abuse by increasing prices to
consumers and by reducing costs—which too often means a loss of jobs. At an average retail salary
of $41,000 per year, return fraud and abuse is costing retailers and Canadian workers between
30,000 and 44,000 jobs.
12
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY
COMBINED
TAX RATE(2)
RETURNS
LOW-END ESTIMATE(3)
LOST SALES
RETURN FRAUD
TAX REVENUE
$534,645,280
13.000%
$22,455,102
$122,866,298
14.000%
$5,160,384
$849,319,241
15.000%
$35,671,408
$2,919,163
HIGH-END ESTIMATE(4)
RETURN
LOST SALES
FRAUD/ABUSE
TAX REVENUE
$32,078,717
$4,170,233
$722,454
$7,371,978
$1,032,077
$5,350,711
$50,959,154
$7,643,873
$693,603,709
13.000%
$29,131,356
$3,787,076
$41,616,223
$5,410,109
$6,618,992,111
14.975%
$277,997,669
$41,630,151
$397,139,527
$59,471,644
$10,546,749,393
13.000%
$442,963,475
$57,585,252
$632,804,964
$82,264,645
$1,088,597,403
13.000%
$45,721,091
$5,943,742
$65,315,844
$8,491,060
$1,147,063,646
10.000%
$48,176,673
$4,817,667
$68,823,819
$6,882,382
$4,575,282,993
5.000%
$192,161,886
$9,608,094
$274,516,980
$13,725,849
$3,931,759,156
12.000%
$165,133,885
$19,816,066
$235,905,549
$28,308,666
$40,821,619
5.000%
$1,714,508
$85,725
$2,449,297
$122,465
$47,733,945
5.000%
$2,004,826
$100,241
$2,864,037
$143,202
$22,154,572
5.000%
$930,492
$46,525
$1,329,274
$66,464
$152,412,868
(3)
(4)
$217,732,668
L ow-end estimates are derived from return fraud figure reported in the 2012 Canadian Retail Security Survey from RCC and PwC.
High-end estimates are derived from trends established in previous years of the Consumer Returns in the Retail Industry report.
MAP OF LOST SALES TA X BY PROVINCE
Legend
<$5 Lost sales tax revenue
$5-$10 Lost sales tax revenue
$10–$49 Lost sales tax revenue
$50> Lost sales tax revenue
Sales tax revenue in millions, based on high-end
estimates from table.
L
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY 13
Return Rate by Retail Category
RETAIL CATEGORY
Apparel
Auto Parts
BLENDED RETURN RATE (1)
9.96%
18.26%
Beauty
5.24%
Children’s Apparel
8.62%
Department Stores
16.50%
Footwear
9.13%
Hard Goods
11.94%
Home Improvement
11.17%
Sporting Goods
Women’s Apparel
NRF Survey Average(2)
8.96%
10.02%
8.89%
Retail category rates derived from TRE analysis of 27,000 stores in the specialty and general merchandise
retail segments.
(2)
Source: National Retail Federation 2014 Return Fraud Survey. October & November 2014.
(1)
Key Findings
◾◾ The NRF survey average return rate (8.89%) is lower than the TRE return rates in several of the retail
categories because the NRF survey included retailers outside of these select categories, like grocery
stores and drug stores, which helped lower the average return rate.
The Retail Equation Conclusions
◾◾ When working on returns problems, dig deep to find the real metrics. TRE reviews return data direct
from POS T-Logs—so all returns, exchanges, online returns, employee sale returns, and every other
refund scenario is considered to build an actual return rate. Only with a true return rate can you begin
to size and solve your return and shrink issues.
14
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY
Summary
The tenth Consumer Returns in the Retail Industry report represents the seventh year that
The Retail Equation sponsored the National Retail Federation (NRF) Return Fraud Survey
as a means to present a single source of metrics to the US retail market. The goal is to
understand the extent of annual merchandise return fraud and abuse, which is estimated
between $10.8 and $17.6 billion in the United States. By raising awareness of the problem,
we hope to stimulate a dialogue that will lead to best practices and solutions.
Additionally, this is the third year we have included return fraud and abuse estimates
for the Canadian retail market, as calculated from statistics compiled by the Retail Council
of Canada (RCC). Annual merchandise return fraud and abuse in the Canadian retail
market is estimated between $1.2 and $1.7 billion.
In the competitive world of retail, it is critical to understand how returns and return
fraud reduce net sales and contribute to inventory shortage (shrink). The results within offer
the industry’s best look into the subject of merchandise return policies and procedures,
as well as potential fraud and abuse. This information can be used by loss prevention
professionals to compare and contrast their own program results to those reported here,
with an eye toward reducing losses from this source.
When considering solutions, remember that broad policy-based initiatives impact every
shopper; potentially adversely affecting good customers as well as abusers, and consumer
satisfaction may suffer as a result. Ultimately, implementing the right solution, combined
with employee training that encourages diligent attention to the issue at the store level, will
help result in reduced return fraud and abuse – leading to lower return rates, lower shrink,
increased net sales, higher profits, and improved customer satisfaction.
For more information on the 2012 Canadian Retail Security Survey that generated
portions of this executive summary report, please contact the RCC at www.retailcouncil.org.
For more information on the 2014 NRF Return Fraud Survey results that generated
portions of this executive summary report, please contact Kathy Grannis at [email protected]
(855.NRF.PRESS) or Robert Moraca, VP, Loss Prevention at [email protected].
2014 CONSUMER RETURNS IN THE RETAIL INDUSTRY
15
2014
ANNUAL RETURN SURVEY
Consumer Returns
in the Retail Industry
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© December, 2014 The Retail Equation, Inc. All Rights Reserved.
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