May 12, 2022
Adrian Beck

For consumers, the growth in online retailing has few downsides – where once they were limited to visiting local retail stores to browse, select and purchase the products they wished to buy, now they literally have the retail world at their fingertips, offering a bewildering array of choices. In addition, retailers operating in this highly competitive environment are constantly innovating to try and stay ahead – options such as next day delivery, which not many years ago would have been a premium service, are now considered the norm.

Of course, where online retailing is at a disadvantage compared with physical stores is in relation to the purchase of clothing and footwear. The vagaries of product sizing, personal styling and comfort are much easier to address prior to purchase in a retail store than it is on a website. Inevitably, this has led to a significant increase in the number of products being returned to retailers by online shoppers – practices such as potentially buying three different sizes of the same item with the intention being to return those that do not ‘fit’ are commonplace. For some retailers this has become a major issue – return rates of 40-70% are not unusual for some sectors of retailing, generating enormous logistical and cost issues.

In addition, the sheer volume of online sales and the growing practice of fulfilling those orders from an existing network of stores can generate process issues, not least the wrong items being sent to consumers, which in turn can generate returns and incur further costs.

Another problem retailers face is thieves exploiting their returns process through refund frauds. Perpetrators typically rely upon a key ambiguity to successfully perpetrate their crime – a retailer’s inability to categorically know whether an item presented for a refund has ever been purchased in the first place. In many respects refund fraud is one of the easiest ways to commit retail crime – genuinely purchase an item and get a receipt, return to the store and take another item matching the description on the receipt from the shelf and present it for a refund. Store staff will assume that the product is the same item as described on the receipt and therefore issue a refund. The thief then gets to keep the original product for free. The fundamental flaw is that the SKU code does not uniquely identify each individual product, but merely offers a descriptor of what the product is to enable a price look up and trigger adjustments to the inventory. The ECR research on how retailers are innovating in the use of RFID shed light on the ways in which the technology could help them to better manage some of these issues relating to refunds. There were three key aspects that were identified.

Maintaining Product Visibility: Where retailers offer the consumer multiple ways to return a product – fulfilment centre, local store, distribution centre, third party etc – keeping inventory records accurate across a retail estate can be a real challenge. Because RFID enables products to be uniquely identified and for this to be done more regularly because of non-line of sight reading, returning stock can be more quickly and effectively integrated back into inventory records and put back on sale.

Ensuring Order Integrity: The ECR research identified one retailer that had recently begun to use their RFID capability to improve the accuracy of their online order fulfilment process. It was being used to enable a check to be carried out on the accuracy of the picked goods against the original order. The retailer claimed this had generated a massive reduction in claims for incorrect orders and complaints – a drop of at least 90%.

Tackling Refund Frauds: Because RFID offers a way of uniquely identifying every single item to which a tag is attached, it enables each product’s status to be identifiable – has it been sold or not? For dealing with refund frauds, this is a real game changer – when a thief presents a product for a refund with a fraudulent receipt, the system will know that the product being presented for refund has not been sold thus far – the receipt is associated with another uniquely identifiable product, but not this one. In theory, this makes refund fraud extremely hard to carry out – the thief’s powerful weapon of ambiguity has effectively been neutralized. As the use of RFID in retailing matures, then more use cases like those described above for helping to manage some aspects of refunds will emerge. However, fundamentally, RFID is merely communicated data and so the real value comes from how that data is used to generate business intelligence that will sustainably enhance the profitability of the business.

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