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RFID Could Reduce Return Fraud—a $14 Billion Problem

A study conducted by the National Retail Federation found that fraudulent returns will cost retailers nearly $3.7 billion this holiday season. RFID could help lower that number, adding to a company's ROI.
Posted By Mark Roberti, 11.09.2010
A press release came across my computer screen this morning, bearing the headline "Return Fraud to Cost Retailers $3.7 Billion." That's a big number, so I began reading.

The release said, "According to NRF's annual Return Fraud Survey, completed by loss-prevention executives at 111 retail companies, the retail industry will lose an estimated $3.68 billion to return fraud this holiday season, up from $2.74 billion last year. Return fraud will cost retailers an estimated $13.95 billion during the 2010 calendar year, up from $9.59 billion in 2009."

Wow! Nearly $14 billion in losses!

Return fraud is simply bringing back items you didn't buy at a specific retailer, and getting money back for them. The biggest problem in this area is that people steal goods and then return them.

Of those surveyed, 93.5 percent reported that they have experienced returns of stolen merchandise in the last year. When RFID Journal created its RFID Fashion Retail ROI Calculator (see RFID Journal to Give Away New Retail ROI Calculator at RFID in Fashion 2009 and RFID Fashion Retail ROI Calculator), we didn't include the reduction in return fraud as a potential benefit, because we had no data regarding the amount by which the technology could reduce such fraud.

But there's no doubt in my mind that RFID can put a big dent in this problem. If every item in an apparel store were tagged, and if the retailer had an RFID reader at the point of sale, then that store would know whether a particular product was sold or stolen. And if someone tried to return a stolen garment, the retailer could then call the police.

Another issue is buying an item at a discount and returning it, claiming it was purchased at full-price. I have a friend who does this all the time. She will buy a sweater before Christmas for $50, and then see the same sweater on sale after the holiday for $12. So she'll buy the $12 item and then return it using the receipt for the $50 purchase, pocketing the $38 difference.

If each item were individually identified through the RFID tag's unique ID, then when my friend returned the $12 item, saying it had cost her $50, the retailer would know the actual price for which that item had been sold. At that point, the retailer could then decide whether or not to take the item back and refund the difference.

To manage returns, retailers would need to have a policy in place stating that for an item to be returned for cash, its tag must still be on it. I don't see that as a big obstacle. It doesn't mean the tag must be sewn into the article of clothing—it just means the tag should not be cut off or removed. If a person hasn't yet worn a purchased garment, then there's really no reason to cut off the tag.

RFID can't solve all return fraud, of course. It won't help retailers deal with customers who buy a gown and wear it once to a wedding and then return it, nor will it help with the return of items purchased with counterfeit money. But if RFID could reduce the $14 billion in return fraud by even 10 percent (which, in apparel, it surely can), then that would add significantly to the return on a company's investment in an RFID system.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog or the Editor's Note archive.

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