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Christmas shopping is over. Now bring on the deluge of gift returns.

In many households, the following scenario is something of a Christmas morning ritual:  Pry the gift wrap off your present from Grandma.  Feign some “oohs” and “aahs” over the shaggy sweater with the loud pattern.  And then subtly paw around the box in hope that there’s a gift receipt so you can return it for something you really want.

It’s this consumer mindset that makes late December and January the busiest time of year for merchandise returns.  And while retailers have long had to grapple with the logistical hurdles of accepting and processing a glut of unwanted items, retail and supply chain experts say that the rise of e-commerce has greatly intensified the challenges. Online purchases tend to have a significantly higher return rate than in-store ones, leaving retailers to figure out how to adjust their inventory and labor strategies.

About 23 percent of all returns take place during the holiday season, according to Optoro, a company that helps retailers improve their “reverse supply chain.” Tobin Moore, Optoro’s chief executive, estimates that’s nearly $60 billion worth of goods.

While many retailers see a 5 to 10 percent return rate on in-store purchases, Moore said the return rate for online purchases is higher–typically 10 to 15 percent.  For apparel brands, experts say the online return rate can be much higher, in many cases closer to 20 or 30 percent.

A deluge of returns can be expensive for retailers, and not just because they’ve lost the initial sale. They’re often footing the bill for return shipping. To re-sell the item, they might have to put it on the sale rack at a reduced price or take it into the secondary market–an outlet store, perhaps, or a discount retailer such as T.J. Maxx. And they’re also incurring labor costs for unpacking, processing and restocking the goods.

But despite the costs, retailers have come to view flexible, easy-to-understand return policies as table stakes for competing online.

“When we first started in e-commerce, the thinking was, ‘We’ll make it as hard as possible [to return] because then the sales will stick,’” said Maria Haggerty, chief executive of Dotcom Distribution, an e-commerce logistics company. “As e-commerce has evolved, the retailers have realized that customer acquisition is such a huge cost, that if you get one sale from them, you don’t want to lose them” with a frustrating return policy.

That’s why some retailers are working now to streamline their processes, providing shoppers with pre-paid return labels for online purchases and trying to reduce the number of steps it takes to complete the return., for example, recently trimmed its return process from 12 steps to three.

Even as retailers focus on making the process more convenient for shoppers, a perhaps more important goal is to prevent them from having to make returns in the first place.

Overstock’s president, Stormy Simon, said the online discount retailer is focused on improving its product photography and descriptions so consumers know more up front about what they’re getting.

“The more savvy that consumers become with researching their items, the better off it is for all of us,” Simon said.

Many shopping Web sites, including Nordstrom, Boden and Land’s End, are now offering “fit predictor” tools that help shoppers figure out their size.  While these offerings are geared at bringing customers a new convenience, analysts say they are also likely aimed at stemming the tide of returns by reducing the number of customers who buy the same item in several different sizes with the plan of keeping only one.

Customer reviews, too, are part of retailers’ strategies to cut back on returns.  Analysts say that innovative retailers are parsing this feedback to help with future merchandising plans: Perhaps it can tell them if a certain style of pants is running large or a fabric is pilling in the wash.

“Even if you get [returns] down, you want to know how to get them lower,” Simon said. “The good news is I’m not alone.  The whole world is trying to figure that out.”


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The Insane $11 Billion Scam at Retailers’ Return Desks

A Gameboy with a sardine can inside. A printer stuffed with a piñata. ‘Return fraud’ is costing retailers billions—and the ingenious swindles are sometimes breathtaking.
She appeared to be just a happy American consumer out shopping at a big-box store.On one summer lunch hour, Donna Ann Levonuk, 50, lifted a tub of diaper cream priced at $43.98—and then stashed it in her purse. No alarms were triggered as she strolled out of the Giant supermarket in Limerick, Pennsylvania, and nobody thought otherwise.Until Levonuk reappeared an hour later wielding the soothing stuff at another Giant store 20 minutes away.

That’s when the jig was up.

“She had couple of fictitious rewards cards—but this time she used one of her own,” said Ernie Morris, a detective with the Limerick Township Police Department who foiled the spree of bogus returns. “When they steal things, they want to get all the bonus points.”

She also had a spending habit.

“As quick as they were going out, they were getting stuff—living a lifestyle where they wanted luxury.”

Return fraud has been called the invisible heist—or “de-shopping.” But the increasing number of fraudsters bringing back wares to stores to make an illicit killing has  become impossible to ignore.

Expensive items, such as $400 handbags, might be stolen  and then returned for in-store credit that is issued to the conniving customer in the form of a gift card.

Then the gift card is shopped online in a gray market to collect cold currency.

“It’s like the Wild West for trading gift cards,” Moraca told The Daily Beast. “People will buy your $100 gift card for $82, and if you want the cash bad enough you’ll do that.”

Gift cards are sold at kiosks in shopping malls or even websites that catering to this exchange market. Some have innocuous-seeming URLs like or, which cloak the sinister operations.

“By selling the gift card online, [criminals] can receive up to 80 percent of the retail value,versus 10-20 percent on the street corner,” said Joseph LaRocca, vice president of loss prevention at Retail Partners, a Los Angeles-based consulting firm.

Siras’ Dustin Ares pointed to one organized crime ring that used eBay as its clearinghouse.

This return scam involved purchasing broken electronics off the auction site and then buying new items off store shelves. “They would go to the store with a repackaged and shrink-wrapped broken item inside a new box and return it for full value.”

The clever crooks managed to rack up $2 million in profits over a year, Ares said.

New numbers out today reveal the extent of the “shrinkage.” According to the National Retail Federation, the tally of red from return fraud this year is a whopping $10.9 billion in the U.S., based on figures from 60 retailers surveyed. Holiday shopping season alone accounts for $3.6 billion.

“The losses to the industry have moved up $1 billion-plus from a year ago,” said Bob Moraca, the NRF’s vice president of loss prevention. “I am frightened by how much of this is caused by organized retail crime.”

In some cases, the scammers’ tactics are so intricate that it’s hard to believe how much talent is wasted on the effort to cheat businesses out of everyday items.

The industry lore is downright jaw-dropping in the details of the cons known as “brick-in-box” returns.

“Even the retailers themselves don’t realize how extensive this is,”said Dustin Ares, a loss-prevention specialist at SIRAS, a Redmond, Washington, company that develops advanced tracking tools for electronics.

A digital media player’s mainframe is replaced with eight AA batteries, or a deck of cards. Or the device that looks like Gameboy from the front. But try to turn the sucker on—and good luck: The sardine can that’s inside isn’t going to produce much gaming.

One customer retooled a Nintendo Wii with its innards switched out for glued pennies. Another sent back a flat-screen television with a bona fide tombstone within. Another returned a printer box stuffed with a candy-filled piñata.

Laughs aside, the methods can take on other, less spirited forms.

Moraca pointed to another form of return fraud, involving gift cards.

Retailers were hammered by the scheme because checks and balances were scant in 2012, when the eBay grifting peaked.“If you don’t have any record, you don’t know who to believe,” he added.

That’s just with the physical items that you can see.

Ares said there are instances where savvy gankers manage to exploit loopholes.

For instance, “A guy goes around and purchases expensive items and at the same time buys into the extended service plan. Then he calls the service-plan provider and claims the items were in disrepair and asks ‘What can you do about this?’”

A refund for the service plan was executed, and according to Ares, this particular shakedown artist hit the company offering the service plan more than 200 times in two weeks—each time pocketing a couple Benjamins in an insurance settlement with little to no need to prove anything was faulty.

“The company would continue to refund these goodwill refunds.”

Like Donna Levonuk and her husband, Manuel—who ended up getting slapped with more than a 1,000 counts of felonies, including forgery, records tampering, and deception when they milked one store after the other—their schemes were more of the harebrained variety.

And yet brazen bandits prove time and again they are willing to try to return anything.

Bill Hedrick, chief of staff for the city attorney’s office in Columbus, Ohio, says he’s found people combing parking lots outside major stores hoping to luck out on rogue receipts to tender inside for a score.

Some have been willing to try to bring to the registers multiple box sets of popular music or TV shows only to  get nabbed pulling a fast one on the checkout clerk.

The Sopranos box set was maybe $88,” Hedrick told The Daily Beast. “They take a .88 cent sticker off reject videos and put it on The Sopranos and two others and then go to the cashier lane.

“Even the cashier realizes that they were trying to get away with $300 worth of box sets for $3.”

And maybe even Tony Soprano might have respected the paint switcheroo that suckered employees at several Wal-Mart locations, according to a security chief at a major corporation.

The perpetrators idled in parking lots outside various Wal-Marts and approached customers with cans of paint to ask for the customers to forfeit the cans so they can be used to collect money for their school sports teams.

“They would get the cans and bring them back to the stores but they didn’t have any paint in them,” said the source, who requested anonymity. “Instead, they filled them up with water. This happened over a dozen times before they caught on.”

The industry as a whole has been cracking down.

Joseph LaRocca says some companies are upping the ante in terms of fending off return fraudsters.

For instance, with the illicit gift cards being fenced online there’s been some measures put in place to prevent thieves from pawning them willy-nilly.

“Some retailers have sent legal notices to these marketplaces to restrict the resale of cards, while others are using sophisticated technology to block these companies from checking the value of the cards online,” LaRocca said.

And Dustin Ares notes better communication has been working.

“We’re getting ahead of it now to be sure,” Ares said. “We employ inventory management to help solidify their property and make sure they have a better record of their possessions.”

Det. Morris, who brought the Levonuks to justice, says that indeed more retailers are trying to share what they know with law enforcement, but it’s an uphill battle when most follow the adage that the customer—even the crooked customer—is always right.

“Most places don’t wan to prosecute and so they give more rights to the customer than anybody else,” he said, stressing that the crime isn’t victimless since the cost rises for the innocent consumer. “In the end, we as customers suffer because we’re stupid enough to pay $40 for a T-shirt.”

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