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The Savvy Online Consumer

How Do Customers Take Advantage Of Retailers

By Rich Johnson on September 24th, 2010 • 11 comments

We’ve all heard the stories about businesses taking advantage of their customers, but it isn’t as common to hear about customers scamming the stores. This hidden side of fraud has become a huge problem for businesses both online and in person. Some estimates find that retailers lose $16 billion a year due to the sly tactics of sneaky criminals, and some of their crime isn’t even illegal. Below, we explore the fraud to so often goes undetected – consumers taking advantage of retailers.

Friendly Fraud

(source)

This damaging behavior takes place when a person charges a big purchase to their card, and then files a fraud claim with the credit card company. Friendly fraud is different than someone stealing a card and making fraudulent purchases in that person’s name, because the card owner is the one making the dishonest charges. PayPal explains that customers performing friendly fraud often claim that the item was never shipped, or that the wrong item was shipped, or that they never authorized the charge at all.

Online stores are big targets for friendly fraud because of the anonymity of Internet transactions. In fact, The Wall Street Journal reported that “an online jewelry site and a travel site were seeing 50% spikes in the practice since [fall 2008].”

Price Arbitrage

(source)

Arbitrage is another type of retail fraud that involves swapping differently priced but similar items for a higher return. To illustrate this concept, imagine a computer hard drive. Most hard drives look extremely similar, but a 1 terabyte drive is certainly much more expensive than a 20 gigabyte model. A person committing arbitrage might purchase both hard drives and then place the cheaper one in the expensive one’s box and return it for a full refund.

BustAThief reports that 52.4% of retailers are affected by price arbitrage, making it one of the most serious retail cons in terms of scope. Unlike some of the other forms of fraud on this list (such as wardrobing, discussed below) arbitrage is actually a crime punishable by law. The problem is that so many of these cons go undetected because the unsuspecting employee simply re-stocks the box and puts it back on the floor for sale. Days, weeks, – even months – might pass before another buyer takes that exact piece home, opens the box, and discovers that arbitrage has taken place.

Return Fraud

(source)

Due to the unique look of some items, arbitrage is not an option. When truly audacious fraudsters encounter this problem, they try a different approach – replacing the item with something completely different. Take for example the person who purchased a Nintendo DS from Wal-Mart and replaced it with a bunch of rocks. Sealing the box back up, he returned it to the store and the lackadaisical service desk employee never even thought to check. Since the box felt heavy enough, he received a full refund, and the box of rocks was then re-shelved and sold again.

This kind of fraud is much more risky than arbitrage, simply because if the employee ever decided to open the box, the customer would have a lot of explaining to do. But that doesn’t mean it doesn’t happen. Take for example the man who purchased a Macbook Pro from Best Buy and got it home to find a paving stone where his laptop should have been. Though it was not completely proven that someone stole the computer and replaced it with a brick, one finds it hard to imagine Apple doing it as a cheap prank.

“Wardrobing” Merchandise

(source)

Also known as “renting,” wardrobing merchandise involves buying a high-priced item, using it for a special occasion, and then promptly returning it for a full refund. Though not actually illegal, the practice is damaging to retailers, affecting their sales figures forcing them to discount perfectly good merchandise because it has been slightly used. SixWise reports that wardrobing effects 56% of retailers, and commonly occurs with expensive dresses that will likely only be worn once (such as a prom dress).

Wardrobing doesn’t only happen with clothing. Consumer advocate blog The Consumerist reports that dishonest transactions like this happen with many different kinds of items, including digital projectors needed for a single business presentation. The real danger in wardrobing is that those who commit the fraud don’t see it as a problem. “When I rent something, I’m taking good care of it,” said Deignan, the man who wardrobed the digital proctor. “…It made me look good when I saved my company $600 in rental fees for the projector.”

Returning Stolen Goods

(source)

The return of stolen goods might be the most sweeping form of customer fraud in retail. Affecting 92.5% of businesses according to BustAThief, this kind of fraud involves a customer stealing items from a store, and then returning them for a cash refund or store credit. Despite the obvious fact that stealing is illegal, WholesaleNewsletter points out that some businesses make the process quite easy for thieves to take advantage of.

Like many other retailers, Costco allows customers to return items even when the customer does not have a receipt. Customer satisfaction is the most important aspect of their business model, and their return policy reflects this priority, but it also opens them up to victimization from crafty thieves.


Comments

11 Responses to “How Do Customers Take Advantage Of Retailers”
  1. Kyle says:

    Also for the last point there is another method people use. They will buy an item on clearance at one store, and return that item to another store for full retail price. Sometimes to the point of buying a video game at one store for 9.98 and taking it to walmart and getting 50 for it.

  2. VikzAtl says:

    This article is spot on. With the exception of the hard drive example. Its almost impossible to find a 20GB hard drive anymore, and assuming one really wanted one, would ironically, pay more for it than a 1TB one.

  3. Joey says:

    Another scenario goes like this: A consumer goes to a garage sale, Goodwill store, or countless other discount resale shops and buys a second-hand $200.00 Talbot’s womens’ suit. There’s a small stain on the jacket but at $20.00 it’s a steal. The consumer then takes the suit with the known stain, along with other garments, to their local dry cleaner. The consumer later blames the dry cleaner for the stain on the jacket and demands to be reimbursed $200.00 for the ruined jacket. The reputable dry cleaner feels responsible and verifies the retail price of the suit and gives the consumer $200.00.

  4. Stealfromthem says:

    the stores themselves steal from us, overpricing while producing the goods in dirt poor nations with hardly the labor restrictions that the states have. Poor consumer that gets tricked into buying over priced item. Shoplift all you want, free trade steals a lot more from your wallet than you do from them. That is why most stores security devices are not up to date since they are to bogart to pay for decent security, and the profits that they receive from poorly made shoes and shirts from china outweigh the loss from shoplifters.
    And go ahead and hate all you square bears.

    • Gotojail says:

      I hope you enjoy your jail sentence taking it up the rear because that’s where you’re going to end up. Try to justify your dishonest behavior if you wish, but it will catch up to you eventually.

  5. Gguy says:

    I bought a new USB keyboard from XSCargo and when i opened the box, it had and an grubby PS2 style one that was missing keys.

  6. ugh says:

    I bought a Stevie Ray Vaughn 2 CD set from a national chain store that was sealed as all new CD’s are. Upon opening the CD it was discovered that the 2 discs were blank cd media. The store insisted that I had made the swap since it was impossible to open a CD without damaging the sticky label that seals the CD case. After showing the store how easy it is to remove that sticky label and reapply without damaging it they gave me my CD’s. Not sure if this was a ‘customer return’ CD or if store personnel may have had a hand in it.

  7. Chris says:

    Sorry, but “renting” an item is not criminal. If the retailer accepts it, it’s okay. I say use and abuse the Wal Marts of the world. That’s small potatoes compared to how they screw our electoral process (lobbying) and the working class.

  8. jon says:

    your example of arbitrage is wrong… check a finance textbook and try again.

  9. GiantsWillWin says:

    I think price arbitrage is different than financial arbitrage. You can read about it halfway down this page in Business Week: http://www.businessweek.com/bwdaily/dnflash/aug2005/nf2005085_7387_db008.htm

  10. Jon says:

    One scam I did once was:
    1. Bought a Xbox Live Headset for $90

    2. Opened and peeled off the code for a 12 month membership and 400 m points.

    3. Returned it for full $90, with receipt claiming unopened.

    4. Used the peeled off code, not stealing anything from the package.

    5. Saved $65

    Was this illegal? It was only peeling open a product that I bought.
    Even though I did open it, they never asked of it was and just assumbed
    it was not since the way I opened it… Thought?! Maybe this is another type!

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