Study: Fraud losses, management eat up more than one-fifth of retailer revenue
Merchants’ fraud costs are a growing expense — and the pace shows no sign of slowing.
Fraud losses and management eat 8% of the average e-commerce retailer’s revenue, up from 7.6% in 2016, according to “2017 Financial Impact of Fraud Study: Exploring the Financial Impact of Fraud in a Digital World.” The report is from Vesta Corp. and Javelin Strategy & Research.
Merchants who sell only digital goods, like eBooks, eTickets and other instant download items have been the hardest hit. Fraud operations account for 9.7% of revenue, and their fraud spend increased by 42% year over year.
Compared to 2016, chargeback losses — which occur when merchants end up footing the bill for legitimate consumer or fraudster purchases — increased by 60% among digital goods merchants. This jumps to 75% among those merchants selling strictly physical goods.
Meanwhile, false positives — which occur when merchants mistakenly decline legitimate transactions — grew by 25% among digital goods merchants, and 27% among physical goods merchants.
The average e-commerce merchant now devotes 21% of its operational costs to fraud management, up from 18% in 2016. Overall, the average retailer’s fraud management spend increased 17% in 2017.
"Merchants' fraud costs continue to rise year over year," said Javelin Research director Al Pascual. "While some merchants have experimented with new fraud fighting tools and tactics, on the whole, they haven't been able to keep pace with dynamic fraudulent threats.”
Looking ahead to the next 12 months, e-commerce retailers plan to utilize at least 14 different payment security techniques and solutions to combat fraudulent purchase attempts.
"The writing is on the wall," explained Vesta chief marketing officer Tom Byrnes. "If merchants don't modernize their fraud protocols, they won't be focused on growth or innovation; they'll be struggling to stay in business."
Walmart tests new delivery drop-off point — the customer’s fridge
Walmart’s new grocery delivery program could give it a huge edge in the online ordering game.
The discount giant is testing a concept that will not only deliver fresh groceries, but also enable a delivery person to enter customers’ homes and put away perishables in their refrigerator. Walmart, which announced the news in a blog on its website, is partnering with August Home, a smart locks and smart home accessories provider, and same-day delivery company Deliv, to test the service.
Here’s how it works: Customers place their order online, and when the order is ready, a Deliv driver delivers it to the shopper’s home. If no one answers the doorbell, the driver enters a pre-authorized one-time passcode into a smart lock keypad installed beside the door.
Customers receive a smartphone notification that the delivery is occurring, and they can monitor the delivery through home security cameras integrated with the August security app. Non-perishable items are left in the foyer, and fresh merchandise is placed into the shopper’s fridge. Once the Deliv associate leaves, the customer receives a notification confirming the delivery is complete and the door was automatically locked.
The concept is being tested among a handful of August Home customers in Silicon Valley.
“We want to do more in the future by delivering groceries and other orders in whatever location works best for our customers – inside the house for some and in the fridge/freezer in the garage for others,” Sloan Eddleston, VP, Walmart e-commerce strategy & business operations, said in the blog.
“What might seem novel today could be the standard tomorrow,” she added. “This may not be for everyone – and certainly not right away – but we want to offer customers the opportunity to participate in tests today, and help us shape what commerce will look like in the future.”
The program rivals similar services that use lockers as delivery drop-off destinations, such as those offered by Amazon. To expand its breadth among more shoppers, the online giant also recently launched The Hub by Amazon, a delivery locker system designed for apartment blocks and other housing complexes that may not have services to accept or store packages.
Jet.com, Walmart’s e-commerce operation launched a similar program through a partnership with Latch, a provider of smart building access technologies. The program enables participating residents to use their smartphone as a “remote key” to grant access to delivery companies dropping off packages, even if they are not home. The program is in 1,000 buildings in New York City.
However, neither Amazon nor Jet’s programs are equipped to store fresh merchandise.
To see a video of the new Walmart delivery pilot, click here.
Finish Line profit, sales down in Q2
Finish Line missed analysts expectations for its second quarter amid continued heavy promotion in the athletic footwear market.
The retailer reported net income of $2.8 million, or 7 cents per share, for the quarter ended Aug. 26, down from $22.1 million, or 53 cents a share, a year ago.
Consolidated net sales fell 3.3% to $469.4 million. Finish Line same-store sales decreased 4.5%. In positive news during a disappointing quarter, same-store sales at Finish Line's in-store shops at Macy's same-store sales increased 5.6%.
“Our second quarter results were shaped by a very promotional marketplace for athletic footwear,” said Sam Sato, CEO of Finish Line. “With industry headwinds weighing on our sales and margin trends, we remain disciplined in managing our expenses and inventories. While we are planning for a challenging retail environment in the near-term, we are confident that the merchandise, digital, in-store and operational initiatives currently in place will allow us to achieve our current full year outlook and best position the company to deliver increased shareholder value over the long-term.”
Separately, Finish Line said its board of directors appointed Faisal Masud as a director of the company effective September 19. Masud is chief technology officer for Staples.
The company’s outlook remains unchanged from the update given August 28, 2017, which is Finish Line comparable sales to decrease 3% to 5% versus its previous guidance for an increase in the low-single digit range.
Adjusted earnings per share are now expected to be in the range of $0.50 to $0.60 for the 53-week fiscal year ending March 3, 2018, versus the previous guidance range of $1.12 to $1.23, and compared with adjusted earnings per share of $1.06 for the fiscal year ended February 25, 2017, which was a 52-week year. The company estimates that the additional week will contribute approximately $0.06 per share to fourth quarter and full year fiscal 2018 results.