Many not-so-happy returns

Estimates are that one in five shoppers will crowd malls and discount stores today to begin cashing in gift cards or to return or exchange that too-big sweater or other gift that just didn't meet their tastes. They'll be met with more scrutiny then ever as retailers crack down on returns.

Faced with a rise in fraud that cost retailers $16 billion last year, and trying to increase profit margins as a saturated industry has made it harder to keep loyal customers, retailers are becoming less forgiving of the merchandise customers return and tightening their exchange and refund policies.

Merchants including clothiers Express and Guess? Inc., office supplier Staples Inc., The Sports Authority Inc., KB Toys Inc. and Best Buy Co. Inc. are asking for photo identification, refusing returns without receipts or requiring customers to contact company headquarters for approval. They're charging restock fees as high as 15 percent and using new technology to track so-called "serial returners," people who have a notable pattern of bringing back merchandise.

The retailers defend the moves. Some people, they claim, buy an item and then return it after wearing - a scam the industry has dubbed "wardrobing." Others stroll into a store, snatch something off the racks, yank off the tags and then try to return it as if they'd bought it. Retail fraud jumped 23 percent so far in 2004, compared with last year, according to some estimates.

"Like any business, they're looking for ways to increase their margins and reduce their costs, and looking at refunds seems to be the way to do that now," said Jonathan Dampier, vice president of marketing for Newgistics Inc., a company in Austin, Texas, that advises 32 retailers, including J. Crew and Neiman Marcus, on return strategies. "Refund fraud can be very costly."

But critics of the more aggressive return policies, and even Dampier, say retailers run the risk of alienating loyal customers while they try to weed out the less desirables. A recent survey by Newgistics and Harris Interactive Inc. found that 85 percent of shoppers said they were likely not to shop at a retailer again if their return process was inconvenient.

Express uses technology developed by Irvine, Calif.-based The Return Exchange to process its returns. With the technology, called Verify-1, a cashier swipes a driver license or other government-issued identification card and then keys in other information, such as product codes on a receipt. The information is sent to a database that looks at variables such as the frequency of returns and the cost of returns, to determine any pattern of fraudulent behavior and return the information in an instant to the cashier.

The men's and women's clothing retailer began using the system as a customer-service tool intended to speed the return process, said Anthony Hebron, a spokesman for Limited Brands Inc., the parent company of Express as well as Victoria's Secret and Bath and Body Works. Hebron also acknowledged that one of the benefits of the system is to catch those who cheat the return system.

He said using the technology makes denials of returns less arbitrary. Previously, it was up to the sole discretion of a manager or other store personnel. Hebron also contended the system could help prevent identity theft.

"Overall, at least what we've found from some of our informal polling, it's a more secure, speedier process," Hebron said.

Return Exchange isn't conducting media interviews, but has said its technology is in every mall in the country. In a statement it put together for the media, Return Exchange said that the Verify-1 system keeps retailers from having to implement strict rules, such as "no receipt, no return," or seven-day limits on returns.

The consumer's information is kept in a secure database and not shared with other parties, the company said. Only about 1 percent of consumers will be denied a return. Efficient returns also helps retailers keep prices down, Return Exchange contends.

Retailers say they lose money from returns, because they might have to sell the returned item at a discounted price or might not be able to sell it all. It also costs more to process one returned sweater than it does a box of sweaters.

But retailers might be losing more money by turning away honest customers who spend in their stores.

"You may be a high-volume shopper, so the number of returns you've been making may be perfectly normal with what you buy," said Jordana Beebe, a spokesman for the Privacy Rights Clearinghouse. The San Diego consumer-advocacy organization has fielded complaints from people who've said they've been unfairly pegged as defrauding a retailer.

Others say consumers might not feel comfortable trying on clothes in a public dressing room. A mom with young children might find it easier to try on clothes at home, then return the ones that aren't right.

"Being tough on returns can wind up biting you," said Thomas Speh, a professor of logistics and supply-chain management at the Richard T. Farmer School of Business at Miami University. "The competition is expanding every day for people's dollars. If you've got a customer, why make them a noncustomer? It's so hard to make people customers these days."

Legally, retailers have the right to deny returns and independently may decide their own return policies as long as they post the policy. The only exception is if there is a defect with the item.

Some shoppers won't buy an item at all if they believe it'll be too difficult to return it, especially an item such as clothing where sizing differs.

Some retailers take the position that customer service trumps all. Nordstrom Inc., the Seattle-based upscale apparel and shoe retailer, has built a reputation for taking just about anything. You bought it a year ago. They'll take it back. No tags. They'll take that back, too - even if it does open them up to fraud.

"We handle returns on a case-by-case basis with the ultimate objective of making sure the customers are happy," said John Bailey, a spokesman. "We don't have a return policy, and that has served us well."