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If you think 's privacy wasn't bad enough. From another list.

 

Dale

-

 

 

 

By STEPHANIE KANG

> Staff Reporter of THE WALL STREET JOURNAL

> November 29, 2004; Page B1

>

> As the holiday shopping season begins, retailers are deploying new

> technology designed to crack down on one of the industry's biggest

> frustrations -- customers who abuse return and exchange policies.

>

> Retailers such as Guess Inc., Staples Inc., Sports Authority Inc.,

> and Limited Brands Inc. are among those using software called

> Verify-1, a product of Irvine, Calif.-based Return Exchange. The

> closely held company helps retailers decide whether to deny returns

or

> exchanges using a program that monitors a shopper's track record of

> bringing items back.

>

> Such tactics are raising the ire of shoppers and privacy-rights

> groups who say the new technology is often an unnecessary and

> intrusive violation of consumer rights.

>

> Retailers say they are on the lookout for various forms of fraud,

> including " serial wardrobers " who buy an outfit, wear it once or

twice

> and return it; shoplifters who return stolen merchandise; employees

> who steal items and return them for cash; price switchers, who

change

> price tags on items, then return one item for the higher amount;

and

> shoppers who use fake or old receipts when making a return.

>

> Return Exchange's Verify-1 system works like this: When a customer

> wants to return an item, the sales clerk asks for his or her

driver's

> license or other form of state-issued identification, and swipes it

> into a machine much like those used to make credit card or ATM

> purchases. The shopper's name, address and birthdate is logged into

a

> database. The program records details about the transaction, such

as

> the store number, the amount of the return, the date, time and item

> description.

>

> All that information is stored on the Return Exchange's server in

> Santa Ana, Calif. Most transactions end there. But if a customer's

> " return behavior " seems out of the ordinary, the transaction is

> rejected and the consumer is given a receipt that instructs him or

her

> to call the company's toll-free number for a copy of a report

> detailing their return activity. Shoppers can also request that

Return

> Exchange investigate the rejected return. The program keeps tallies

of

> the type of transactions, the total amount of the returns and the

> number of exchanges.

>

> The company says the data are available only to Return Exchange,

the

> customer and executives at the retailer. Other personal

information,

> such as a shopper's physical characteristics, is not recorded.

>

> Return Exchange was co-founded by executives who previously worked

at

> companies that tried to prevent credit-card and check fraud. Verify-

1

> first went on the market in March 1999, and its latest version is

the

> result of a $20 million development project that culled the efforts

of

> software engineers, statisticians and Arthur Andersen consultants.

> Since its inception, company executives say Return Exchange has

grown

> to an estimated $10 million a year business -- with its software

used

> in at least one store in every mall in America.

>

> " It's the last big hole retailers need to fill, " says company

senior

> vice president of sales and marketing Mark Hilinski.

>

> The use of Verify-1 is just the latest move by retailers intent on

> curtailing return fraud, says University of Florida criminology

> professor Richard C. Hollinger. According to the 2003 National

Retail

> Security Survey, compiled by Prof. Hollinger, the retail industry

lost

> about $16 billion to fraudulent behavior.

>

> Until now, retailers have focused on tracking fraud at the time of

> purchase. New technology monitors unusual activities like price

> overrides -- the purchase costs $75 but the customer is charged

$25,

> for example. Camera surveillance also pinpoints questionable

behavior.

> Verify-1 tracks customers, however, only when they return or

exchange

> items.

>

> " Retailers have been either ignorant of the extent to which return

> systems have been abused or lacked the technology to be able to

> develop databases that were easily retrievable, " Prof. Hollinger

says.

>

> According to retail consulting firm KingRogers International, in

> 2003, the return rate for specialty retailers was 10.6% of total

> sales, higher than the industry average of 8.58%. About 9% of all

> returns are estimated to be fraudulent.

>

> There's a delicate balance, however, between aggressively catching

> crooks and alienating honest customers. " They want something that

is

> customer-friendly, " says Dan Butler, vice president of retail

> operations at the National Retail Federation, a trade

association. " At

> the same time they want to isolate dishonest behavior. "

 

> Verify-1

> The program has come under fire from consumers. Beth Givens,

director

> of the nonprofit Privacy Rights Clearinghouse, says one initial

> concern was that Return Exchange might aggregate data, meaning that

> data about a customer's returns to one retailer could affect his

> returns at a second retailer that also uses the monitoring

software.

> Return Exchange says it doesn't aggregate data.

>

> Ms. Givens, who has met with company executives, says she thinks

the

> company generally has a " robust " privacy policy. Still, she's

> encouraging the company to be more transparent about how it

pinpoints

> fraudulent behavior. (No group or individual has seriously

challenged

> the right to return purchases under this program.) " By not sharing

the

> rules of the game, the companies are playing a game of gotcha and I

> don't think that's fair, " she says.

>

> Mark Hammond, co-founder and chief executive of Return Exchange,

says

> the software looks at a variety of factors when determining denials

> but he declined to give specifics of the process. He says he

doesn't

> want to give " the bad guys " clues on beating the system.

>

> Concern that honest customers might be hurt by the technology was

an

> issue for Joseph Toth, senior vice president of Los Angeles-based

> specialty apparel retailer Guess. Since Aug. 30, the Return

Exchange

> has been monitoring -- but not enforcing -- returns at 16 of its

> stores in an effort to glean information about its return rate. Mr.

> Toth won't see the data until the pilot program is finished at the

end

> of the year, but he says Guess hasn't received any official

complaints

> when customers were asked to swipe their driver's license.

>

> " There have been some conversations at the register, but no

incident

> where someone went nuts and said 'I won't give my driver's license,

> he says. However, about 10 customers didn't go through with the

return

> once they were informed of the policy, Mr. Toth says, evidence that

> Verify-1 may work as a deterrent.

>

> Using the technology means store employees, many of whom are in

their

> late teens and early 20s, are not deciding whether to permit

returns.

> " There is no arguing with this, " he says. Mr. Toth says Guess will

> decide early next year if it will use the software full time.

>

> Return Exchange executives say they decline about 1% of returns

for

> each retail client, a much smaller percentage than what retailers

> reject on their own. Still, two out of every 100,000 transactions

have

> been challenged this year and 10% to 15% of those challenges

resulted

> in the Return Exchange changing the information in a customer's

> report. Retailers then decide whether to refund the item.

>

> The more frequent occurrence may be from customers unaware of the

ID

> requirement. Carmen Wolf says she refused to hand over her driver's

> license when she tried to return pants and shirts from the Express

> store in the Glendale Galleria mall in California. Ms. Wolf says no

> signs about the policy were posted at the store or detailed on her

> receipt. An Express employee " made me feel like some sort of

> criminal, " she says. She was denied the return even though she had

her

> receipt and the tags were still on the clothes. Express couldn't be

> reached to comment.

>

> With help from the Better Business Bureau, Ms. Wolf six weeks

later

> received a refund for $267. " It just seemed so wrong to impose on

me

> something that I never agreed to and was never informed about, " she

> says. " I will never shop there again. "

>

> Write to Stephanie Kang at stephanie.kang@w...

 

 

 

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