Scenarios and Strategies in Retail Asset Protection and Recovery

by Kristin Secreto

Reverse Logistics Magazine, Aug/Sept 2007

In retail, there’s no bigger asset than the products you sell. And for manufacturers and retailers, the increased prevalence and organization of theft and fraud is making it increasingly difficult to protect them. And getting the upper hand on protecting those assets and reducing those losses can make significant difference to your bottom line.

According to the National Retail Federation, losses from retail theft are estimated at more than $30 billion.

Retail theft can be categorized in many ways. It can be as simple as someone pocketing a single product and walking out of the store, to gangs that have become extremely proficient in stealing large quantities of products, to the theft of products that are still in shipment. Often times, these products end up on Internet auction sites where the criminals turn those products into cash.

Or the theft can be more “creative,” such as in the case of Claude Allen, former aide to President Bush, who was arrested in 2006 for attempting to “return” more than $5,000 worth of merchandise that he’d taken from the display shelf directly to the returns counter, using receipts from earlier purchases of those items.

There are a host of products and technologies that work to prevent, or at least reduce, products from being stolen off the showroom floor. And some loss is inevitable. But there are those significant losses associated with other kinds of theft – theft coming from habitual criminals, as well as normally law-abiding people who think nothing of coming up with creative ways to “bypass the system.” And one thing they all have in common is that they involve the fraudulent return of products to the same or a different store. In fact, The National Retail Foundation reports that fraudulently returned products cost the industry more than $9.6 billion dollars a year.

Some examples of these include:

• Multiple use of the same receipt, as in the case of Mr. Allen
• Counterfeit receipts
• Sweetheart returns: Where employees help out their friends by letting them return products that are not eligible for return
• Product “Renting:” People purchase products for a specific use, such as a car navigation system for use during the family summer vacation, and then try and return it when they are done
• Brick-in-a-box: Replacing the product in the box with junk, shrink-wrapping it, and returning it as new and unused
• Serial number label tampering/counterfeiting

What Can Be Done?

Many of the products most susceptible to these practices have a built in mechanism that makes them easier to identify and track, thereby reducing or eliminating product return fraud, and also recovering products that may have been recovered by law enforcement. That mechanism is the unique fingerprint created by each product’s UPC code and serial number.

MP3 players, flat-screen TVs, video games, in-car entertainment and navigation devices, appliances, and many other seasonal products all contain serial numbers that, when combined with their UPC number, make them definitively identifiable. The question becomes: how do you create a network to record and organize this information? The scope is obviously far too broad, both in merchandise and geography, for any single manufacturer or retailer to have any significant impact working alone. But what has proven to be effective is an electronic registration and reporting network that is a working partnership between manufacturers, retailers and even law enforcement officials.

Electronic Registration – A Time-Tested Technology

Electronic registration technology is not new. It actually got its start with video gaming giant, Nintendo, who in the 1990s, Nintendo of America, Inc. recognized that the profits from its video game sales were severely reduced by the number of products being returned, many fraudulently, at retail.

So the company developed a product registration system to give its retailers a foolproof method to track individual products throughout the product lifecycle, thus ensuring that everyone in the product chain – the manufacturers, their retailers, and the consumers were being treated equitably and properly. One key element of the system was to provide protection without collecting any personal consumer data.

The system, which Nintendo has spun off and is now available through an independent service provider, includes proprietary methodologies, such as vendor product registration, trending and analysis, and exception reporting and alerts. Taking control of this processes, and given this ability to track these products, resulted in Nintendo achieving a 72% reduction in return rates.

How POS Electronic Registration Works

As we said before, combination of a product’s UPC number with its serial number to establishes a fingerprint for each individual product. When a product’s fingerprint is scanned, either manually or via RFID, the information is transmitted to a third party database, where it is stored with the retailer’s transaction information.

Originally, this data capture happened at the point of sale to the consumer. However, some manufacturers are now recording the unique identifier information before the product is shipped to retailers, which makes every product trackable, even if the product was stolen – bypassing the retailer’s POS system. The information is then recorded again at the time of consumer purchase, thus creating a purchase record and warranty start date. This data is then stored in a third-party database.

It’s important to emphasize in this era of identity theft that no personal information is recorded with the product data. The only information that is documented is the unique identifier and the retailer’s transaction number.

When a product returned is attempted, the retailer has only to scan the UPC and Serial numbers to find out if the product is eligible for return. If the product falls within the warranty and return policy guidelines, the clerk simply accepts the product and issues the appropriate credit or refund. If it does not meet the guidelines, the clerk can easily show the customer why it is ineligible. If the product turns out to have not been registered in the product database, the attendant is notified of that, too, and the retailer may seek additional information from the customer.

Unforeseen Benefits

While the financial benefits of loss prevention by preventing fraudulently returned products and is quite obvious and quantifiable, electronic registration has delivered some unintended, yet valuable benefits for retailers, consumers and law enforcement officials.

By being able to supply product transaction data, retailers have been able to improve their customer service ratings by increasing the efficiency with which they have helped customers who have lost their receipts, forgotten where they originally purchased the product (or had it purchased for them), and, as previously mentioned, referred customers to nearby repair centers.

For manufacturers, it has resulted in having a valuable tool to speed customer service call times, track warranty eligibility and manage reserves. Customers also benefit by having a virtual, electronic “receipt” validating a product’s warranty entitlement.

But an even broader application has been the system’s ability to prevent retail fraud and to help retailers and law enforcement officials track down thieves. Some examples include:

• Knowing both the unique identifier and the associated transaction number has helped retailers track down customers who have attempted to alter, forge or swap serial numbers on products or on receipts.
• Reporting systems have been established to aid in the recovery process by flagging products for cross-retailer return attempts.
• An Orange County, CA home invasion suspect was convicted based on a product’s purchase registration record.
• The perpetrator who substituted AA batteries for an MP3 player and returned it as new after shrink-wrapping the box
• Products found at pawnshops and identified as stolen – or identified as purchased with fraudulent tender.
• And a recovered pallet of Sony PlayStations that had been stolen from a return distribution center

Today, more manufacturers, retailers and law enforcement organizations are looking to tap into these databases to help them identify stolen products. And as the database grows, the odds of limiting loss grow with it. So while gangs, career criminals and even normal, every day consumers try to use guile and technology to take advantage of any and every opportunity to steal from you, electronic registration is proving an increasingly useful tool in protecting and recovering those all-important assets.

Kristin Secreto is the Vice President of Client Services at SIRAS.com, a wholly-owned subsidiary of Nintendo of America. SIRAS is the pioneer in the patented methodologies and systems of POS Electronic Registration and Smart Return, which allows retailers to track product, reduce returns and fraud, protect inventory, validate warrantees, and improve both forward and reverse logistics. Tracking only products – not people – SIRAS respects consumer privacy and is a valuable tool for manufacturing and retail clients to improve operations, visibility and the customer experience throughout the life of the products – all while maximizing profitability.

Reverse Logistics Magazine, Aug/Sept 2007