And no, I'm not talking about inflation or shrinkage or self checkout lines, retailers have a return problem.

There was about $5 trillion worth of retail sales last year, 14.5% of those were returned.

That is huge. $743 billion worth.

You might have heard some retailers are changing return policies, shrinking return windows, limiting the types of items that can be returned, even charging for returns in some cases.

In fact, 81% of retailers implemented pay-to-return policies in some capacity and 2023.

Amazon, Macy's and others have added fees, or they've shortened the window for returning items purchased online.

Return fraud has caused a number of retailers to tighten their return policies writ large.

Now, most people assume these crackdowns have to do with fraudulent returns or return scams, and they do to an extent.

Retailers expect 16 and a half percent of holiday returns to be fraudulent this year.

That's 24 and a half billion dollars worth.

The reality is returns have always been a drag on the bottom line, and the advent of ecommerce accelerated the issue.

As retailers started absorbing the cost of postage, transit, and lost items, it's no wonder big box companies are starting to change their policies, making it harder for fraudsters and cutting down on the cost of returns across the board.

You changed a little bit of some of your policies on returns and when you actually refund people and you know, you try to make sure you know you got the right product before you actually authorize the refund.

But what if I told you this is just the latest effort and cracking down on return losses?

What if retailers have been quietly tracking your return behavior for years?

First, let's establish what fraudulent return behavior is.

We have a lot of customers will send back a broken product or try and defraud the retailer by sending back something else in the box.

Now, those are pretty easy examples, and often those returners know they're engaging in fraudulent behavior.

But there's also times when people take advantage of return policies, things like wardrobing, where a shopper buys a clothing item for an event with the intent of returning after well, you may be following the basics of a return policy.

Retailers viewed this as problematic behavior.

It's the people who are misinterpreting are not following the intent or policies are really problematic for retailers.

Now, if you're still thinking, "I'm not a fraudulent returner, I always follow the rules. This obviously doesn't apply to me."

Sure, maybe not. But that doesn't mean you haven't been flagged in the past.

It isn't sort of a binary event. It isn't that either you're a good returner, or bad returner.

Essentially, what retailers are trying to do is ensure that every customer is profitable on their own.

A 2018 report by the Wall Street Journal documented what was and still is it largely unspoken policy of big box retailers tracking and profiling, risky return behavior, even going as far as banning customers from returning at the store.

Customers who seemingly have done nothing wrong because of their return score.

But what's the return score? Who's keeping track? And what do they know about me?

Let's use an example.

Say, I went into my local big box tech store and bought a laptop last year.

I take it home and decide this isn't for me, I'm going to return it.

So I go back to the store and return the item; within the proper time period. I have my receipt, it's in the original packaging.

But this is a pretty expensive item, so I'm asked to show an ID.

Hey, no big deal. I give them my ID and the card I made the purchase with, all good.

I get my money back and leave the store.

Fast forward to today. I got to buy a flat screen TV at that same big box store.

But oh, I get it home and it isn't the right size.

You know what? I'm just going to order it online. So I go back to that big box store and return the TV within the proper timeframe.

I have my receipt, it's in the packaging and wait, what do you mean I can't return it.

I'm following company return policy, aren't I?

I'm then handed a sheet that tells me I need to reach out to a third-party company to find out why my return was refused.

Turns out this store has been sending my data out to a third-party loss prevention service provider and unbeknownst to me, this company has been building a profile on me for years.

They have access to my name, address, phone number, ID number, even my loyalty account information.

Basically any personal data I've handed over to this retailer.

Now, this is all hypothetical, but loss prevention companies and this exact practice is very real.

The most prominent being a company called The Retail Equation.

According to The Retail Equation's website, it works with individual retailers outline what the retailer deems as potentially fraudulent behavior.

From there, The Retail Equation software tracks customer return behavior and assigns a score to returners who may exhibit potentially fraudulent behavior.

According to The Retail Equation, it software normally tracks factors such as frequency of the specific transaction types transaction value, whether the customer has a receipt in purchase history at that retailer,

but what does that look like in practice?

Well, according to the Wall Street Journal, it could be a lot of things, bringing back several returns in a short amount of time.

Returning a large portion of your purchase, maybe you forgot a receipt, returning an expensive item returning a frequently stolen item, even returning an item close to closing time.

These are just a few examples of things that could hurt your return score.

Meaning in theory, even a shopper who is operating within the bounds of a return policy could get penalized.

For some they may never know they even had a score or that it was impacted.

For others, this could look like a warning handed out at the return counter or being outright banned from returning at that retailer.

According to customer complaints lodged with the Better Business Bureau, customers reported feeling blindsided by the return blocks of major US retailers.

Several complaints go as far as claiming the penalize behavior and the report was misreported, and I had no way of seeing it until after they were given a warning or the return was already blocked.

It's complaints like these that prompted several now dismissed class action lawsuits against The Retail Equation between 2020 and 2023.

Plaintiffs in each suit alleged this software often gets information wrong, and give shoppers little recourse when it comes to accessing or correcting the data The Retail Equation collects.

The lawsuit goes on to claim that this data is supplied to The Retail Equation without the knowledge or consent of consumers.

The problem is these types of complaints are hard to backup.

Often these policies are outlined where most of the fine print is buried in retailers' Terms of Service or return policy.

It isn't something you can opt out of because if they have decided to outsource their return logistics to a third party, and you're agreeing to purchase from them in that purchase agreement,

you're also implicitly opting into accepting the third-party logistics provider for returns.

At the time of The Wall Street Journal report, The Retail Equation said it worked with 34,000 stores.

The 2021 class action suit named several retailers as defendants including Dick's Sporting Goods, Best Buy and Advance Autoparts.

Other retailers like Home Depot and TJ Maxx have also been identified as past users of The Retail Equation services.

And this leads back to our bigger question.

If retailers have been implementing these targeted policies for a while, why implement broad policy changes now?

Now that interest rates have also risen, what you have is retailers thinking, look, there's a piece of cost here that isn't necessary.

Basically, it's a lot more expensive to be a retailer right now.

Meaning to turn a profit, they're having to tamp down on areas that have historically been money-drained.

According to The Retail Equation's own numbers, the US retail industry lost over $101 billion to return fraud and abuse in 2023.

And that's not counting the cost of all the regular non-fraudulent returns.

Most of the returns that come back, it cost up to 40% of the return or the original retail price to put that item back on the shelf, and there's no guarantee they can sell it for what they originally asked for it, so they're looking losing money on both ends.