OCTOBER 9, 2013

Merchants have found that shrinkage and pilferage account for 1-3% of retail inventory loss. But BusinessWeek (Sept. 30-Oct.6, 2013) reports on yet another source of loss to retailers. Many merchants have long lived by the mantra that the customer is always right, adopting liberal return policies in hopes of winning the loyalty of free spending shoppers. But with a recent increase in the wearing and subsequent return of expensive clothes—a practice merchants call wardrobing—many retailers are taking a stronger stand against the industry’s $8.8 billion-a-year return fraud problem.

Bloomingdale’s just started placing 3 inch black plastic tags in highly visible places on dresses costing more than $150 as they are being purchased. The clothes can be tried on at home without disturbing the special tag. But once a customer snaps it off to wear in public, the garment can’t be returned. Similarly, Nordstrom uses silver-colored paper tags, similar to price tags, which are affixed high on the outer side seam under the arm of special-occasion dresses. They must still be attached for returns.

The department store chains are not alone in trying to outwit some unscrupulous customers. Electronics retailers have turned to hefty restocking fees to discourage short-term use of expensive electronics to watch events such as the Super Bowl.  Improper returns afflict a wide swath of products. Such “borrowing” also has become prevalent in fine jewelry, seasonal décor, and tools. Ditto for expensive video cameras popular at weddings. After the nuptials, the gear sometimes goes back into the package and off to the store for a refund. Some Victoria’s Secret stores are compiling lists of serial returners. And high-end outdoor goods retailer REI recently announced it’s ending its lifetime return policy after customers took advantage of its lenient rules.

Merchants say the costs are now too great to ignore. About 65% of retailers reported experiencing wardrobing last year, meaning 3.3% of their total returns were fraudulent.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.