Unlocking the Value of Returns

2. Unlocking the Value of Returns

3. Speaker Panel • Dr. Read Hayes – Director, Loss Prevention Research Council • Libby Rabun – Vice President, Loss Prevention, AutoZone • Kevin Darnell – Director, Loss Prevention, Brown Shoe • Mark Hilinski – EVP, Strategic Accounts, The Retail Equation

4. Q1: What retail segment are you? Large format/ Discount/Department Grocery/Drug Home Center/Hardware Specialty/Apparel Other Q2: What is your return rate percentage? 0-5 6-10 11-15 16+ Unknown Interactive Question Placeholder

5. Presentation of Return Fraud/Abuse Survey Findings Dr. Read Hayes – Director, Loss Prevention Research Council

6. Customer Returns In The Retail Industry • Conducted on 2007 data and released in 2008 • Survey Objectives • Identify retail industry return rates including: total returns, receipted returns, non-receipted returns, and the various forms of fraudulent and abusive returns as identified by the retailers. • Identify current practices in the retail industry for processing customer returns. • Identify issues related to customer returns that are common among retailers. • Share the results of the survey with the retail industry as a whole.

7. Key Finding • $15.5 billion annual return fraud and abuse problem

8. Key Metrics: Survey Averages • Return rate: 7.32% • Return Fraud/Abuse percentage: 8.23% • Percent returns non-receipted: 14% • Calculation: $2.581 trillion total retail sales * 7.32% total return rate $188.9 billion total returns * 8.23% fraudulent return rate $15.5 billion return fraud and abuse

9. Demographics

10. Segment Specific Results

11. Findings: Importance • 70% of the respondents indicated that return fraud is an important issue to their company. • The majority of retailers (64%) report that focusing on reducing refund fraud is a high priority. • Almost half of the respondents believe they have the opportunity to achieve return fraud reductions of more than 30%. • Two-thirds of retailers believe that their current return policies and systems are “ineffective” or only “somewhat” effective in deterring return fraud/abuse.

12. Findings: Receipts • The majority of retailers’ current processes and systems for reducing return fraud continue to focus on non-receipted rather than receipted return transactions. • But, well over half of those surveyed have found forged receipts used in committing return fraud. • This may indicate a trend and closer attention should be paid to the vulnerability of receipted returns.

13. Industry Trends • Fraudulent and abusive returns are a persistent problem that will likely get worse in this economy • Across the board return policy changes affect good customers as well as problem shoppers • Intelligent solutions are available

14. Q3: Have you recently changed your return policy in order to address return fraud? Yes, it’s changed Planning to change No Unknown Q4: With state of the economy, have you observed incidents of return abuse and fraud… Increase Decrease Remain unchanged Interactive Question Placeholder

15. How AutoZone is Addressing Return Fraud and Generating Real Results Libby Rabun – Vice President, Loss Prevention, AutoZone

16. AutoZone – Returns Management At AutoZone, our philosophy is… “Always put Customers First!” Before: • Previous policy provided very limited scrutiny and controls • No ID • No receipt required • Warranty data base acts as receipt • Stated a 90 day return policy with little adherence

17. AutoZone – Returns Management At AutoZone, our philosophy is… “Always put Customers First!” During (how did we convince our operations partners): • Small pilot program • Delivered proof of concept and initial ROI • Internal IT solution with full system integration • Consistent, deliberate communication & training plan • Training, signage, brochures • Gained and utilized field operators feedback • Continuous analysis • Proof is in the numbers

18. AutoZone – Returns Management At AutoZone, our philosophy is… “Always put Customers First!” After: • Our philosophy does not change • New program began with clearly stated goals: • Reduce overall return rate through • Reduced internal related fraud and abuse • Reduced external related fraud and abuse • Increase net sales • Increase Store Manager satisfaction • Ensure consistent following of written returns policies

19. AutoZone – Returns Management At AutoZone, our philosophy is… “Always put Customers First!” After: • We now: • Reserve the right to limit a return regardless of receipt • Ask for ID • Ask for receipt • Still use transaction file and warranty data base • Use third party to review authorization requests and respond with approval, warning, or denial response

20. AutoZone – Returns Management Control versus Program Stores Control stores: Returns Rate bps. Rate Reduction -15.16% -6 -0.4% Program Stores: Returns Rate bps. Rate Reduction -14.41% -75 -4.9%

21. AutoZone – Returns Management Customers’ Responses to AutoZone's Overall Return Policies & Ease of Returning **All KPIs remained flat or showed improvement

22. AutoZone – Returns Management The best is yet to come! • Override percentages began at mid 90’s • Majority of stores on program for less than 9 months • Currently at 43% override percentage • Weekly KPI reporting • On-going communication plan • Continuous ROI analysis

23. AutoZone – Returns Management • Quotes from SVP-Stores

24. Q5: Is reducing return rate on your current initiative list? Yes No Unknown Q6: Have you performed an analysis to see if high returns correlate to high shrink? Yes No Unknown Interactive Question Placeholder

25. Example of Return Fraud Solutions in Action Kevin Darnell – Director, Loss Prevention, Brown Shoe

26. Return Authorization at Brown Shoe 2006 Rollout Information captured ID Name Phone Number Address Reports Compliance Reports Internal/External

27. External Fraud • 49 Total Returns • Returns at 6 different stores • $2,328 in returns

28. Internal Fraud – Our Challenge • Tie the Return Data with Exception Reporting • Write Exceptions with in the Software: • No ID Swipe • No ID Entered • Different Name / Same Address • Same Name / Different Address • Refund % to Sale by Cashier

29. Video Overview The subject “Jason” had been with the company for 6 weeks (3 weeks running the register) The 3 weeks he was working the refund % to sale went from 8% to 30% 89% of all refunds did not have the required Return Information (No ID Swiped or Entered) 50% of the information that was entered was fictitious After the interview “Jason” agreed to make a post interview video to be used for awareness orientation for new managers and the Loss Prevention industry

30. Make The Right Choice (Play video)

31. Interactive Question Placeholder Q7: What is the leading factor keeping you from implementing a return authorization solution? • Cost • Customer Service • Store Operations changes required • Too many other projects • Other

32. Possible Solutions to Address Return Fraud and Abuse Mark Hilinski – EVP, Strategic Accounts, The Retail Equation

33. Solutions • From the LPRC survey: • Retailers continue to use a variety of methods, both manual and automated, in order to identify “bad returners” and stop the attempted return transaction. • Tools employed include: policy changes, abuser lists, exception reports, real-time fraud detection systems, pos receipt validation, video analysis, and more.

34. Recommendations • Ask for an ROI. Reducing fraudulent returns is a measurable action and should come with a documented ROI. • Think twice before you let a restrictive return policy impact your good customers. • Fraud occurs in both receipted and non-receipted returns. • Do your research yourself; other functional areas do not always think like a loss prevention expert when selecting solutions.

35. Questions?