Retail Fraud Gravy Train Could Be Derailed

With the new year of 2009 upon us, we're on the tail end of the holiday season and that means those customer service lines are packed with folks trying to return unwanted gifts for cash or store credit. However, what you may not know is that some of those customers are returning goods they never bought-- and cashiers may even be in on the tricks as well.

We blogged a few weeks ago about the growing trend of retail fraud in retail stores nationwide, and as we said, it's as simple as walking into a store, picking up an item and returning it for a full refund. Return fraud will cost retailers an estimated $11.8 billion in 2008 — $3.54 billion during the holiday season alone.

3VR was featured last week in a segment on CBS 5 San Francisco about our proactive approach to eliminating retail fraud with our surveillance software. The piece focused on our unique facial recognition and surveillance technology, which immediately sends alerts to security personnel the moment suspected fraudsters enter the store. Using the 3VR solution, retailers have access to everything they need to apprehend fraudsters before they can make their escape into a crowded mall or parking lot and before employees clock out for the night.

Research is showing that due in large part to the ailing economic conditions we're facing, retail thefts are no longer mostly limited to customers in urban areas. Both customer and employee hands are stickier this holiday season in more rural regions, demonstrated in the spike in crime in states such as Arizona, Colorado and New Mexico. Coupled with smaller budgets that have forced stores to cut prevention costs, retailers are stuck with tremendous financial losses. Organized Retail Crime (ORC), or "sophisticated crime rings that steal and stockpile huge quantities of merchandise that is sold later to unwitting buyers" in flea markets, pawn shop and other outlets, has also increased in these tough times.

"It's not pure need, but times are tough and the economy triggers people making bad decisions," said Joseph LaRocca, vice president of loss prevention for the National Retail Federation (NRF). An October NRF survey revealed 79 percent of retailers polled have experienced an increase in employee theft compared with the same period in the previous year, and according to LaRocca, retailers lost $34.8 billion in 2007 from employee thefts and shoplifting combined.

Ranging from simple shoplifting tricks and cash siphoning from registers to colluding with customers in sweethearting (when the store cashier works with the customer and intentionally undercharges by skipping items when checking out), retailers are fighting an uphill battle against employee fraud this year. As recent statistics and coverage is showing, proactive solutions like 3VR will be ever more critical in 2009 for retailers looking to prevent these criminal acts from both sides of the transaction and survive the slower revenue streams expected in the year ahead.

Attention Shoppers: All Sales (Should Be) Final

While not the latest trend, the bear market has spurred a spike in acts of 'wardrobing' and other illegal retail fraud in stores nationwide.

'Wardrobing' essentially describes the act of purchasing a retail item, using the merchandise and returning it for a refund often with the original tags still attached. Think of it as ordering an entrée at a restaurant, having the waiter bring it to your table, then sending it back to the kitchen and having the waiter serve it to the next customer who orders the same meal.

As this blog notes, Good Morning America featured a clip last week on the year round practice that peaks during the holidays, as consumers are confronted by the traditional excess of events and cocktail parties and pressure to come up with something suitable to wear. The segment even has an interview with an anonymous 'wardrober' who admits she only committed her wrongdoings because she was strapped for cash.

While this woman and other frequent wardrobers often write off their misdeeds, it seems to be in their best interest to stop while they're ahead. Retail stores are finally catching on, expecting a loss of $11.8 billion in 2008 ($3.54 billion during the holiday season alone) due to fraudulent returns and thus increasing security surveillance. Furthermore, while some stores are extending return policies to garner more sales, many retailers are beginning to give bonuses to cashiers who catch wardrobers red-handed, as well as tracking those customers who are making a high number of returns.

So, wardrobers beware: if store cameras don't catch onto the illegal practice, few cashiers will pass up the bonus from denying a return of that stained shirt you wore to the company holiday party.