FINANCE

Return fraud will cost retailers $10.9 billion in 2014

BY Marianne Wilson

Washington DC –The industry will lose an estimated $10.9 billion to return fraud this year, with $3.8 billion accounted to this holiday season alone, up slightly from last year’s $3.4 billion. Overall, retailers polled estimate 5.5% of holiday returns are fraudulent, similar to last year’s 5.8 percent.

“Today’s sophisticated technology does well keeping criminals at arm’s length but often isn’t enough to completely stop the unethical practices of organized and individual retail fraud occurrences,” said NRF VP of loss prevention Bob Moraca. “Return fraud has become an unfortunate trend in retail thanks to thieves taking advantage of retailers’ return policies to benefit from the cash or store credit they don’t deserve. Additionally, many of these return fraud instances are a direct result of larger, more experienced crime rings that continue to pose serious threats to retailers’ operations and their bottom lines.”

According to the survey, nearly all (92.7%) of the retailers polled say they have experienced the return of stolen merchandise in the last year, similar to last year’s 94.8 percent. In a troubling sign that organized retail crime continues to present significant challenges for retailers, more than three-quarters of those polled (78.2%) say they have experienced return fraud through returns by organized retail crime groups, up from 60.3 percent last year.

As more shoppers look to digital receipts for ease and convenience, retailers are noticing increasing return fraud instances with e-receipts: the survey found more retailers this year said they have experienced return fraud with the use of e-receipts (18.2% versus 15.5 % last year).

The survey also found a significant jump in the number of retailers who say they have experienced the return of merchandise purchased with fraudulent or stolen payment methods (81.8% versus 69% last year).

Additionally, one-quarter (25.5%) of the retailers surveyed said they have witnessed fraudulent returns using counterfeit receipts, down slightly from 29.3 percent last year; eight in 10 (81.8%) retailers surveyed report that they’ve dealt with employee return fraud or collusion with external sources, down from 93.1 percent last year.

One of the biggest issues for retailers is the practice of “wardrobing,” or the return of used, non-defective merchandise such as special occasion apparel and certain electronics. Though many companies have employed specific tactics to curb this unethical practice, nearly three-quarters (72.7%) of retailers polled say they have experienced wardrobing in the past year, up from 62.1 percent last year.

The problem of return fraud has forced many retailers to adopt policies that require customers who are returning merchandise to show identification. Retailers estimate that 14.1 percent of the returns made throughout the year without a receipt are fraudulent and as a result, 70.9 percent now require customers returning items without a receipt to show identification. Even when a receipt is present, more retailers polled this year say they ask for identification (25.5% versus 12.3% last year.)

Overall, retailers report a small percentage of online purchases returned to their stores to be fraudulent (3.5%).

When asked about return fraud and the various types of payment methods, 72.7 percent of those polled said they have witnessed an increase in gift cards/store merchandise credit fraud in the past year. Nearly four in 10 (38.2%) surveyed said they have witnessed an increase in return fraud with the use of credit cards, although 45.5 percent report no change in fraudulent credit card usage from last year. Additionally, three in 10 (30.9%) said they’ve witnessed an increase in debit card fraud.

Eighty-seven percent of those polled said they allow customers to return merchandise bought online to their brick-and-mortar stores, up from 82.5 percent last year.

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FINANCE

Finish Line pulls ahead with Q3 income

BY Dan Berthiaume

Indianapolis – The Finish Line Inc. reported an 11% improvement in net income during the third quarter of fiscal 2014, rising to $2.58 million from $2.32 million. Lower impairment and store closing charges, a slowed pace of growth in cost of sales, and an income tax benefit all helped spur the growth in profit.

Consolidated net sales were $395.8 million, an increase of 9% from $364.45 million. Same-store sales rose 4.5%.

“Third quarter comparable sales rebounded from second quarter trends, however merchandise margin pressure kept us from achieving our profitability plan,” said Glenn Lyon, chairman and CEO of Finish Line. “We’ll continue to invest in the omnichannel initiatives focused on delivering long-term financial goals. That said, we are adjusting our near-term capital spending plans and creating a more flexible expense structure to protect profitability until stronger full price selling trends reemerge.”

Finish Line lowered it earnings per share guidance for fiscal 2014 and also expects same-store sales growth in the low-to-mid single digits for the year.

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FINANCE

Pier 1 meets Street with Q3 profit decline

BY Dan Berthiaume

Fort Worth, Texas – Pier 1 Imports Inc. met Wall Street expectations with a 33% year-over-year decline in profits during the third quarter of fiscal 2015. Net income fell to $17.9 million from $26.8 million, with an increase in selling, general and administrative (SG&A) expenses driving the reduction.

Total sales were $484.5 million, a 4% increase from $465.5 million. Same-store sales rose 2.5%. E-commerce sales tripled to comprise 12% of total sales in the third quarter. More than 60% of e-commerce transactions touched the stores during the period.

“We are confident that the value proposition created by our exclusive and unique product remains strong, and our refined promotional strategy, which benefited this period, will contribute to gradual improvement in our gross margin rate over the coming quarters,” said Alex W. Smith, chairman and CEO. “We have in our stores and online business two mutually supportive and interdependent vehicles to drive long-term, profitable growth.”

For the full fiscal year, Pier 1 expects same-store sales growth in the mid-to-high single digits. This figure includes e-commerce sales.

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