Issue: Why are retailers suing their customers?
Commentary by: David Vinjamuri

We have been ranting for some time about companies that pursue business strategies that harm the brand. A Wall Street Journal front-page article yesterday highlights another such practice. Companies including The Home Depot, Wal-Mart and Lord & Taylor are hiring law firms to threaten or pursue civil litigation against suspected shoplifters to recover damages. They do this in addition to criminal proceedings.

If handled appropriately, this might not be a foolish practice for the brand. Recovering damages from those who have committed criminal acts against the brand lowers the cost for law-abiding consumers. Unfortunately, like many other practices administered by corporate financial people without any brand oversite, this one casts too wide a net with disastrous results.

In one case cited by the Wall Street Journal, a handyman in Miami named Glenn Rudge was detained at Home Depot after he checked out because a clerk observed a set of $8 drill bits poking from his shirt pocket. He was handcuffed in the store by a guard and the store refused to let him call home and ask his wife to bring the receipt for the drill bits in to the store. He was charged by prosecutors who then dropped the charges when he produced the receipt.

To add insult to injury, a month after the charges had been dropped, Rudge received a letter from the Palmer Reifler law firm demanding $3,000. That sum increased by another $3,000 when he ignored the letter. Mr. Rudge was threatened with a visit from the Sheriff’s office in the second letter. Fortunately, Mr. Rudge was doing handyman work for an attorney who filed suit for him and recovered undisclosed damages from Home Depot.

This example is one of many detailed by The Wall Street Journal and experienced by innocent consumers around the country. Retailers are combating a real problem - the estimated $40 billion annual cost of shrinkage (losses to theft, shoplifting and other consumer fraud) - but doing so in a manner that harms their brands and causes unmeasurable damage to their revenue.

This all stems from a very anti-brand attitude which assumes that consumers are all guilty until proven innocent. The price for this belief is huge reputation damage in word of mouth and negative publicity.

Retailers would be wise to adopt a more customer-friendly attitude towards potential theft. A few thoughts:

1. Approach customers politely - some of them will be innocent.
2. Do not forcibly detain customers - unless unambiguous evidence of a crime exists.
3. Allow customers to explain - accept reasonable explanations even if some may be false
4. Do not sue customers - who have been judged innocent in criminal court.
5. Add common sense to your shrinkage policy - why are customers purchasing hundreds of dollars being detained for $8 items?

It seems unlikely retailers will heed these warnings. In spite of repeated negative publicity, they continue to learn lessons from the music industry - suing their own customers until they have no business left.

This entry was posted on Thursday, February 21st, 2008 at 2:09 pm and is filed under commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.