Retailers Are Watching You With New Tracking Program

By Jenna Sauers | December 28, 2010 | 10:45pm

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Good news? Some stores are now making it easier to return unwanted items. Bad news? They’re doing it by employing proprietary tracking software that displays each shopper’s entire return history. Meet the Return Activity Report. You probably already have one!

The Wall Street Journal, naturally, takes a sunny view of these developments, headlining its story on the results of an annual survey of changes in retailers’ return policies, “Retailers Loosen Up on Returns.” But if one were to read down to paragraph fifteen of said story, one would learn that, actually, 84% of retailers are not changing so much as a comma of their return policies this year. And if one were to Google for the full text of the study the Journal is quoting, the National Retail Federation’s Annual Return Fraud Survey, one would learn that:

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5.5 percent of retailers said they will loosen their holiday return policies while 10.9 percent will tighten.

So, um, actually twice as many retailers will tighten their return policies this year as will “Loosen Up”! Imagine — the Journal, caught in the act of taking a pro-business angle even when things like the facts they are reporting on would seem to flatly contradict such a view. Sky, blue. Moving on, studies show that having a more liberal return policy can be good for business:

V. Kumar, a Georgia State University professor who has studied the impact of return policies on sales, said chains underestimate the toll that restrictive policies take on retailers’ reputations. In a study published in the Massachusetts Institute of Technology’s Sloan Management Review last spring, he concluded that while retailers with looser return policies experience far higher return rates, they also have better sales, profits and word of mouth than stricter competitors. “It is about time retailers started realizing they need to relax return policies,” Mr. Kumar said. “Psychologically, people perceive less risk in buying from retailers with more relaxed policies. It makes people buy more.”

This would, presumably, be the motivation of the 5.5% of stores that are actually liberalizing their return policies this season (and of the 33% of stores who say that they are more flexible in executing their return policies immediately following the holidays, when people occasionally want to ditch that lumpen sweater Great Uncle Nelson picked out for reasons unknown and mailed without a gift receipt).

But such largess is coming thanks in large part to the development of consumer-tracking software. The Journal reports that a company called Retail Equation obtained a patent in September for software that allows retailers to track individual shoppers’ return histories. (If you’ve recently been asked to swipe not just the credit card of purchase but your driver’s license when making a return, that’s why.) How widespread is the use of this software? Retail Equation says its “transaction optimization solutions” are in use in over 15,000 stores. That is, “at least one store in every mall in America.”

Retail Equation says its system allows retailers to “intelligently authorize merchandise returns.” Sounds anodyne, right? Supporters say individual Return Activity Reports allow stores to differentiate between customers who need to make a return or exchange for reasons the retailer would presumably consider genuine — an item was purchased in the wrong size or color, or was defective — and customers who habitually buy merchandise, use it for a short time, and return it. (The latter is known in the retail industry as “wardrobing,” is said to be most common in apparel and electronics, and retailers say it, along with other forms of return fraud, like returning shoplifted items and receipt duplication, will cost them $13.95 billion during the 2010 calendar year.) A Return Activity Report tracks all of a shopper’s returns and exchanges — not just at the store of purchase, but at every store that uses Retail Equation’s software.

Retail Equation’s web site has a handful of details on its bare-bones “information page” for consumers:

A Return Activity Report is a history of your return transactions posted in stores using Verify return authorization. The report lists return activity information including the stores you have returned to and, for each return, the date and time, whether it was receipted or non-receipted, and the dollar amount.

You can also apply to see your own Return Activity Report (like a credit history), although the company has no listed process for disputing any inaccuracies.

If a consumer gets flagged as a “problem” returner in Retail Equation’s system, stores would have the option of refusing to accept further returns from that person, or even turning away their custom. Some online retailers have already been known to suspend or ban user accounts that make “too many” returns. The idea of a private company tracking consumer behavior and sitting in judgment of it — the idea of having an indelible and persistent “return history” that follows us from store to store and transaction to transaction, like a credit history — all without our express permission, is at base very creepy. In fact, it’s the kind of Big Brother-ish customer service development that rather makes one want to avoid shopping at stores that employ it altogether.

Retailers Loosen Up On Returns [WSJ]
Return Fraud To Cost Retailers $3.7 Billion This Holiday Season, According to NRF[National Retail Federation]
The Retail Equation [Official Site]