E-commerce booming in apparel industry, but fraud a growing problem – Industry

The clothing industry, highly sensitive to global events, has boomed during the pandemic, with online sales hitting new highs year on year – but fraud is starting to eat into margins as cybercriminals target the sector in booming.

So find the last e-commerce data report from Signifyd, which describes how far fashion and apparel have come during and after the pandemic and how they can adapt to meet new challenges in the years to come.

Every day is a holiday

The fashion industry is booming. According to International Trade Administration, in the pre-COVID-19 era, global e-commerce revenue in the apparel industry was $658 billion. Post-pandemic, that number is expected to reach $752 billion, a projected increase of 14.3%.

In Britain, textile, clothing and shoe stores have seen their share of online sales more than doubleduring the pandemic. In-store sales, by contrast, fell by four-fifths at the height of the pandemic and still remains more than a quarter below pre-COVID-19 levels. As clothing stores are still impacted by social distancing measures, the customer journey is negatively impacted, driving people away from physical stores, retailers say. Instead, online sales continue to rise.

The e-commerce boom felt like an endless holiday season with a steady stream of e-commerce orders. At the start of the pandemic, e-commerce retail sales doubled, reaching 33% of all retail sales. Across Europe, there was a 31% increase in e-commerce sales during the pandemic months of 2020 compared to the same period the previous year.

According to Jennifer Ryan, Marketing Director at Astound Commerce, “What were once considered the benefits of digital shopping is now standard practice that will prevail in holiday retail indefinitely.”

These include online browsing for brands, products, and experiences, easily accessible reviews, and a host of payment, delivery, and pickup options. The customer journey will begin online and be followed by the physical retail experience, creating a hybrid buying approach for the holidays and beyond.

Innovative Fraud Rings Enter the Apparel Industry

With the apparel industry being one of the largest, fraudsters have had to come up with innovative ways to break through the walls of two-step authentication and account abuse protection among all methods of protection against fraud deployed by companies.

Andrew Cregan, Head of Financial Policy at the British Retail Consortium, comments: “The modi operandi that criminals have used and honed throughout the pandemic are likely to continue until we have a higher level of awareness around these types of scams among businesses and the public.”

Consumer abuse, such as misrepresentation of items not received (INR) and claims that an item in perfect condition arrived damaged or not as described, increased by more than 100% in the first half of 2021 by compared to 2020. Unfortunately, INR scams extend beyond professional fraudsters, with such claims made by the typical consumer also on the rise during the pandemic. According to a recent consumer survey from Signifyd, 30% of UK respondents said they made false INR declarations instead of getting a refund and keeping the product.

Additionally, some couriers have stopped requiring signatures on delivery to adhere to social distancing measures. Many customers have abused this process by claiming that a package was missing in transit because there was no proof of arrival. This particularly hit high-end fashion retailers who sold more expensive products.

Fraudulent networks have also turned into “friendly fraud” during the pandemic through unauthorized resale. A fraudster, for example, did not mask his fraudulent attempts. He bought $17,000 worth of Air Jordan sneakers and filed a number of chargebacks one by one claiming he hadn’t made the purchase. His goal was to supply his business using these sneakers. However, he made the mistake of posting the big purchase on Instagram and showing the delivery on the retailer’s website.

Other types of fraud that emerged during the pandemic and are still present in the apparel industry include return fraud, mule fraud and card testing.

How the Apparel Industry Can Prepare for Fraud

Fraud attempts especially spiked during the 2021 holiday season. Companies that manually reviewed orders through call verification, for example, couldn’t handle the workload. This caused delays in orders and made it difficult to separate a fraudulent order from a genuine order. This has had a particularly big impact in the apparel industry, where the holiday season increases the demand for party wear and gifts.

To prevent fraud, machine learning and automated order review can be extremely helpful. A good commerce protection platform will be able to easily distinguish legitimate orders from fraudulent ones, thereby optimizing business revenue.

A recent major implementation has also caused disruption among e-commerce businesses. Strong Customer Authentication (SCA) was included by the European Commission in its update to the Payment Services Directive in 2018 in response to fraud pressure across Europe.

SCA stands for two-step authentication which aims to reduce fraud and protect both consumers and retailers. However, the implementation has a significant downside: it creates friction in the customer journey and reduces conversions in the affected countries.

According to global payments consulting CMSPI, in August 2021, the estimated European transaction failure rate was 26% due to SCA. But the failure rate varies by country. For example, the transaction failure rate in Belgium was 41%, while in Germany it was 32% and 30% in Italy. The report also showed that over a 12-month period, around 82 billion euros in sales are at risk.

Like 39% of fashion consumers in the UK browse multiple websites before buying online, the competition for consumer attention span is strong, especially in the highly saturated apparel industry. This means that a thorough two-step verification process can deter consumers from completing the purchase.

In order to combat friction in the customer journey, technological innovation once again comes into play in the face of payment optimization solutions and a robust fraud prevention strategy.

As lockdown restrictions ease, we are seeing some changes in e-commerce as a result of the pandemic transforming to better adapt to the new environment. The pandemic has had a massive impact on the apparel industry, both positive and negative. With the right awareness and tools, fashion companies can continuously adapt to new e-commerce fraud rings and bring their business to the forefront.

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