NRF: Organized retail crime at all-time high
Despite investing in new technology, tightening return policies and other efforts, organized crime rings continue to plague the retail industry.
The extent of the problem is reflected in the National Retail Federation’s 14th annual ORC study, which found that 92% of companies surveyed had been a victim of organized retail crime (ORC) in the past year and 71% of such incidents were increasing. Losses averaged $777,877 per $1 billion in sales, up 7% from last year’s previous record of $726,351.
Retailers attributed the increase to the easy online sale of stolen goods, gift card fraud, shortage of staff in stores, and demand for certain brand name items or specific products. To make matters worse, a number of states have increased the threshold for a theft to be considered a felony. This means criminals can steal a larger quantity of goods while keeping the crime a misdemeanor and avoiding the risk of higher penalties that come with the commission of a felony.
While online fencing has increased over the years, retailers say 60% of recovered merchandise, on average, is found at physical locations. Some ORC activity happens before merchandise ever reaches stores, with 29% of retailers saying they had been the victim of cargo theft that occurred along their supply chains. The good news is this number continues to decline — it’s down from 40% last year, and 44% the year before.
While at least 34 states have ORC laws, 73% of retailers surveyed support the creation of a federal ORC law, noting that ORC gangs often operate across state lines.
Return fraud also continues to pose a serious threat to the retail industry. Retailers estimated that an average 11% of their annual sales will be returned this year, and that 8% of those returns are likely to be fraudulent.
An estimated 12% of returns will not include a receipt, and 21% of those are expected to be fraudulent. In addition, 38% reported in an increase in online purchases returned to a bricks-and-mortar location, and 29% cited an increase of those returns being fraudulent.
During the holiday season, retailers expect 11% of sales to be returned, on average. This is down from 13% last year, and that 10% of the returns will be fraudulent, down from 11% last year.
“Retailers continue to deal with increasing challenges and complications surrounding organized retail crime,” NRF VP of loss prevention Bob Moraca said.
“These criminals find new ways to expand their networks and manipulate the retail supply chain every day,” he added. “The retail industry is fighting this battle by upgrading technology, improving relationships with local law enforcement and taking steps such as tightening return policies, but it is a never-ending battle.”
Retail employee turnover jumps among hourly employees
As the holiday shopping season begins in earnest, retailers find themselves having to cope with high levels of turnover on the frontlines of their stores.
That’s according to a survey of top retailers conducted by global consulting firm Korn Ferry in which 29% of respondents said they’ve seen an increase in employee turnover since the beginning of 2018. The survey also found that of all retail positions, part-time hourly store employees have the highest turnover rate, with 81% average rate in 2018. That’s an increase from 76% in 2017.
“Retailers are in a Catch 22 situation this holiday season,” said Craig Rowley, Korn Ferry senior partner, retail and consumer. “While high consumer confidence and a strong economy mean year-over-year sales are predicted to grow, low unemployment means there just won’t be enough workers to fill retail positions. To combat the situation, retailers are in a bidding war for hourly retail workers, and they are giving existing workers more hours to fulfill the need.”
While retail corporate positions saw the lowest turnover rates in the industry, the percentage was higher in 2018 (15.6%) than in 2017 (13%).
Respondents cited “better opportunities / promotions” as the No. 1 reason for departures in the retail industry, followed by more money and a desire for a more hours. When asked what retailers will be looking to do to curb turnover moving forward, “training” and “career pathing” were cited as the top focus areas, followed by “better communications on the employee value proposition” and “changes to compensation packages.”
In terms of compensation, retailers predict around 3% merit increases, which is consistent with past years. However, due to competition, many retailers are increasing starting wages for new employees. More than a third of respondents (34%) say that in 2018 they gave wage hikes to existing employees to put their salaries on par with increased starting wages,. And 95% said the issue will be addressed by the end of 2019.
“Retailers this holiday season have to be creative when filling vacant positions, especially at the store level,” said Rowley. “To retain top employees, employers need to lay out clear career paths, offer training and pay competitive wages. It’s critical that employees feel nurtured and that they feel part of the organization instead of just having a job.”
Fraud heads list of retailers’ top payment-related challenges
Retailers have gotten little in the way of relief since the switch three years ago to new chip-based credit and debit cards.
That’s according to a study released on Wednesday by the National Retail Federation and Forrester, which found that fraud was the top payment-related challenge faced by retailers, cited by 55% of respondents, as criminals move their activities online.
“The implementation of EMV chip cards and chip card readers was supposed to dramatically reduce credit and debit card fraud,” the State of Retail Payments report said. “So why is fraud still the top concern for merchants?”
The reason is that Europay-MasterCard-Visa chip cards have moved payment card fraud away from stores and toward online transactions, the report said, citing a Forter study showing a 13% increase in online fraud last year. A Federal Reserve study said online fraud rose from $3.4 billion in 2015 – the first year retailers were required to accept chip cards or face an increase in fraud liability – to $4.6 billion in 2016 and was an “increasing concern.”
The second-biggest payment concern was the cost of accepting payment cards, including the swipe fees banks charge to process transactions, cited by 45%. While the survey found 49% of retailers have taken advantage of routing options required as part of a cap on debit card swipe fees passed by Congress in 2010, rising swipe fees for credit cards remain the subject of litigation between retailers and the card industry.
Chargebacks of disputed purchases, which increased after implementation of EMV for some retailers, were the third-biggest concern, cited by 35%.
To help fight fraud, the report found that retailers want better authentication of purchases no matter where they take place. Thirty-three percent have implemented 3-D Secure, a system marketed as Verified by Visa or MasterCard SecureCode that is intended to help authenticate online purchases.
For in-person purchases, 51% of merchants said biometrics would be the best way to verify transactions, and 53% expressed interest in implementing forms such as the fingerprint and facial recognition available on smartphones. But with that technology limited to phones rather than cards, 46% said personal identification numbers would be the best currently available way to approve card transactions.
For purchases made with cards, 95% of retailers said requiring PINs would improve security and 92% would implement it if it were available. While EMV cards in other countries are chip-and-PIN, virtually all EMV credit cards issued by U.S. banks have been chip-and-signature with PIN available only on debit cards. And the major credit card companies stopped requiring a signature last year.
“The chip in an EMV card makes it very difficult to counterfeit the card, but it does nothing to show whether the person trying to use the card is the legitimate cardholder,” NRF senior VP and general counsel Stephanie Martz said. “If we want to stop card fraud, we need a better way of authenticating users and it should be one that’s affordable, easy and safe. Someday the answer might be biometrics or technology that has yet to be invented but, in the meantime, we know PIN can stop criminals dead in their tracks. With no signatures, no PIN and no biometrics, what we have right now is no authentication at all.”
NRF has long argued that PIN is important because the chip in EMV cards only prevents the use of counterfeit cards while not stopping lost or stolen cards, and a PIN can also provide a backup for cases where the chip malfunctions or is tampered with.
“Eliminating fraud and improving authentication are clearly top priorities for retailers,” Brendan Miller, principal analyst at Forrester, said. “As the answers to these challenges are found, the key will be finding ways to implement the solutions in a way that provides a frictionless experience for consumers.”