Chain Store Age - July 2009

The‘Sole’ of Returns Fraud
Brown Shoe Co. adds two solutions to cut down on illegitimate returns

By Deena M. Amato-McCoy

Brown Shoe Co., like so many retailers, is experi- encing increases in its merchandise returns rates — and returns fraud — each year. Eager to fight back, the St. Louis-based chain is protecting itself with a set of solutions that separates fickle, yet harmless, customers from potential threats.

Returns fraud is a significant drain on retail revenue, and the sluggish economy is only spurring more incidents. According to the Holiday Returns Survey 2008, sponsored by the National Retail Federation, Washington, D.C., and

The Retail Exchange, Irvine, Calif., there is a 20% increase in the number of shoppers returning merchandise. Similarly, annual return dollars are up 23%.

Industrywide, almost 9% of merchandise is being returned; fraud is expected play a part in more than 7% of the returns, the study said.

While footwear retailers may not have the same level of fraudulent returns as their apparel, general merchandise and drug chain counterparts, Brown Shoe has had its fill of fraud. The chain has a 9% return rate, which was only intensified by “a disproportionate amount of inventory coming back to the stores,” said Jon

Grander, VP, asset management, Brown Shoe Co., dba

Famous Footwear.

These statistics pushed Brown Shoe to take a stand. Coinciding with its chainwide point-of-sale software rollout, the company integrated a solution to protect itself from fraudulent returns. Called Verify One, from application service provider The Retail Equation, the chain now operates a return-authorization system designed to prevent fraud and abuse.

Prior to tendering a transaction, cashiers ask shoppers for their driver’s license. A Metrologic 1690 Focus scanner, which is integrated at POS, scans the card’s two-dimension-

al bar code. The software takes the data and assigns a customer number that is applied to all future transactions from the individual.

The solution also creates a return score, similar to a credit score, based on the shopper’s purchase and returns history. (All data is transferred directly to Retail Equation’s servers, which convert the information to a unique identification number for security reasons.)

Purchase histories can reveal which shoppers are non-threat-ening, high-return shoppers, versus potential thieves. As shoppers pass a pre-established threshold, they are put on a pseu-do-probation regarding future returns, or can be cut off entirely.

For example, the software alerts cashiers to warn regular shoppers that they cannot make returns for 90 days. Meanwhile, they are prompted to deny individuals who pose an actual threat the ability to make any future returns.

The chain has been rolling out the solution over the last two years, and it will be available at about 1,150 of Brown Shoe’s approximately 1,350 stores by the end of the month, Grander said.

Since adding the solution, the footwear chain has lowered its returns, a factor that contributes to a higher gross profit. With fewer returns to

manage at POS, cashiers are gaining more time to work the sales floor and assist shoppers. The process is also slashing the company’s operating costs.

“Typically, when we get returns of aged shoes, associates are required to send shoes back to the distribution center where they are compiled, packed and shipped to jobbers,” Grander explained. “It is a time-consuming process which costs us a ridiculous rate.”

By reducing the rate of returns, Grander added that the solution is helping the chain experience better sales, since less merchandise is being re-added to inventory. “It also allows us to serve our good customers and stay focused on stopping the ones who are problems,” he said. ■

Lost … and Found (Sales)

Brown Shoe Co., St. Louis, knows that most merchan- dise returns are legitimate. So to make up for any inconvenience to loyal shoppers caused by its new returns policy, the chain is giving these customers limited-time, targeted discounts.

As legitimate shoppers come in to make a return, Brown Shoe is hoping to recuperate those discretionary dollars through a program it calls the Returns Coupon. Once the return transaction is complete, cashiers present shoppers with a 20% coupon that is valid for one hour.

“It is a way to remind shoppers that we still value their patronage and, for us, it is a way to take advantage of the free traffic,” said Jon Grander, VP asset management, Brown Shoe Co.