Exclusive Costco Customer Returns Contract Part 2: Fraud Prevention and Label Sanitation

There are a few more terms you need to familiarize yourself with if you are still interested in obtaining an exclusive contract with Costco for customer returns. In Part 1, I talked about how you simply get the contract, who you need to talk to, and what you can expect in picking up the Costco customer returns for wholesale liquidation.

Real liquidation of customer returns does not just stop with early pick up times. As a liquidator, you are responsible for protecting your supplier from return fraud with label sanitation. When the original supplier, Costco in our case, liquidates products they fully expect to never deal with them again. Here is how you make sure this happens:

Return Fraud With Liquidated Products

The last thing Costco wants to see is their salvage items finding a way back to their front end returns desk. As fraudulent as this seems to be, it’s easy to do and happens with regularity. “How does this happen?” you might ask?

1. Costco sells its salvage batches of customer returns to the contracted liquidator.
2. A wholesale liquidator markets the customer returned products. The customer returns are sold to either a retail store, in case lots (re-wholesale), or in a secondary retail outlet (flea market or eBay).
3. The customer who buys a salvaged customer return drives to the nearest Costco and seeks a full retail refund. Even without a store receipt, the refund policy will usually give store credit or exchange for a brand new item.

A customer returned digital camera for example may end up in the customer’s hands for only $60.00. After taking it to Costco for a retail refund, the refunded amount could be as much as $199, or more. Even in store credit, this is a huge theft by return fraud for Costco, or any other retail outlet!

Prevent Return Fraud With Label Sanitation

It’s up to liquidators to stop return fraud from happening. After all, why would Costco want to sell their customer returns if it will just lead them to more returns? A simple label sanitation process will stop return fraud thieves in their tracks.
Label sanitation covers three basic areas:

• Remove all references to the original source. Sales tags and store stickers are often stuck on the products themselves.
• Remove brand names or strike through with black permanent ink if the brand is store-exclusive. Costco has a few brands exclusive to their stores, such as the Kirkland brand. Make sure you know which brand names scream “I’m from Costco!” and handle them appropriately.
• Disable the bar code or scan tag. Be careful here– only draw a black line with a permanent marker through the black and white bar code so a customer return agent cannot scan the item back in. Do not remove or disfigure the model number or serial number. Those are indications of stolen property, not liquidated products.

Tips and Tricks for Label Sanitation

Label sanitation can be a ton of extra work though. Make sure your contract with Costco, or any other retail outlet, spells out your label sanitation responsibilities. Distinguish between low-risk and high-risk customer returns. Liquidated items like food, paper goods, and household staples are not likely to be returned for personal gain to the original supplier. There are a number of red flag categories for customer return fraud, such as:

• Clothing
• electronics
• Appliances
• Jewelry/Watches

These high risk categories MUST have all labels sanitized. A regular permanent black marker will disable a bar code very easily, and it takes only a moment to do so. Clothing tags should have a black slash through the brand name to denote returned status. If the clothing tag is black, use gold or silver permanent ink instead.

Another strategy is to mark large electronics and appliances with the term “SALVAGED.” You may see this in grease pencil or some other colored marking on the back of a wholesale good in secondary markets. Be leery about agreeing to this practice on every electronic. First, try to make sure you can place such a term discreetly near the model number or other area a customer return agent would look for information during the return process. The reason is that you still need to remember you must resell these items, whether to another wholesale distributor or in another discount retail market. Customers and wholesale buyers will be reluctant to buy liquidated electronics and items with large writing on the back of a negative term like “SALVAGED.”

Bringing up effective strategies to prevent customer return fraud is another valued service you bring as a liquidator. Large retail sellers, like Costco, will be happy you bring this up as it saves them on fraudulent returns. It may take some negotiation on how to handle label sanitation, but make sure you don’t sacrifice your ability to resell the items. Finally, label sanitation shows your supplier that you are a professional player in the liquidation industry.