Wouldn’t it be nice if after the frenetic holiday shopping season, retailers could kick-back and relax — just a little bit?
But of course, there is no downtime in retail today. Some of that has to do with the pace at which consumer preferences, retail technology and market forces are changing. But some of it has to do with the fact that while the winter holidays are definitely the biggies, there are days and seasons throughout the year that bring their own spikes in demand.
Think Valentine’s Day. Retail spending on the holiday of the heart doesn’t come close to Christmas season spending, although it will be big — exceeding $20 billion this year, according to the National Retail Federation. And the uptick in buying is largely confined to certain kinds of retailers — florists, candy sellers, jewelers, sellers of giant teddy bears and sellers of teddies, for instance.
But for those merchants in the Valentine’s Day sweet spot, the mid-February holiday is both a great opportunity and a tremendous challenge. The opportunity is obvious. The challenge comes from the need to scale up operations in order to handle a relatively brief, but dramatic, spike in orders.
Retailers not in the romance business face the same problem during non-winter-holidays and during particular seasons. There’s Mother’s Day and to a lesser extend Father’s Day. (Sorry Dad.) There’s summer with its call for barbecue grills, outdoor furniture, bicycles and other outdoor sporting equipment. Prime Day is increasingly driving higher sales for retailers other than Amazon. Singles Day, which is huge in China, is beginning to spread geographically. Back-to-school is big for apparel retailers and stores that sell backpacks, laptops, classroom supplies and the like.
Holidays often bring a spike in ecommerce orders
All these shopping holidays bring a spike in orders that puts pressure on the systems retailers have in place to handle business during the rest of the year. It presents merchants with a conundrum: Do they add temporary workers to handle the holiday overflow and struggle with the challenge of getting new workers up to speed for a relatively short assignment? Do they tax their permanent workforce and face overtime and other costs? Or do they look for an alternative solution, such as automation?
In the area of fraud protection, the higher order volumes add another complication. Fraudsters will try to take advantage of the noise of a busy period and the inflexibility of a gift-giving deadline to attack online merchants experiencing a surge in business.
Erika Dietrich, of payment processor ACI Worldwide, noted in a company news release that the rise in fraud attempts with the rise in orders is a pattern that the retail industry has seen. It’s a trend that appears to be accelerating. Signifyd’s own Ecommerce Fraud Index saw a 24 percent increase in fraud loses from the 2016 holiday season to the 2017 holiday season.
And it turns out the run-up in fraud is not confined to the winter holidays. It can be spotted at other times during the year when orders surge.
“The consistent, alarming uptick in fraudulent activity on key dates is a signal that merchants must be proactive in their efforts to identify weak points across the omnichannel payment process — and define the short- and long-term strategies necessary to improve security and enhance customer experience,” Dietrich said in the release.
Valentine’s Day provides a good illustration of the complex cat-and-mouse dynamic between online merchants and fraudsters. The romantic nature of Valentine’s Day makes it a predictable peak season for jewelry, luxury watches and other big-ticket gift items.
Some of the challenges for these online merchants are not uncommon. There are the broad range of operational cost increases that come with any surge in orders. There is the heightened expectation of on-time deliveries. After all, there is no deadline like a deadline for getting a gift to the love of your life on Feb. 14.
Other considerations are more nuanced and industry-specific, as we covered in our “Increasing Online Sales on Valentine’s Day” webinar a year ago. For example, as the presentation pointed out, chargeback costs are particularly troublesome in the jewelry industry and have been found to be at the top or near the top for lower order values (under $100) and the midrange (between $100 to $500).
The high rate of chargebacks is compounded when taking into account that the jewelry is traditionally a credit industry, with jewelry manufacturers working with stone suppliers on credit for inventory purposes. Because chargeback costs are immediate cash requirements, they represent crippling limitations for online jewelry merchants in a crowded and competitive market.
Given the added pressures, it would be tempting for any retailer to create friction in the buying process by creating ways to better authenticate customers. Merchants might even begin turning down good orders for fear of fraud. In fact, 67 percent of retailers in an Experian survey said they err on the side of declining good orders because of the fear of fraud.
Customer experience is now retailers’ key differentiator
In the era of customer experience, when how retailers treat their customers is one of their most potent differentiators, refusing to send an order to a legitimate customer is just not a winning strategy. And leaving a customer without a gift for his or her significant other on one of the most romantic days of the year, is definitely not the way to go.
The key to avoiding the unpleasantness born of fear is to know your customer.
“Fraud is always evolving, and fraudsters are becoming more resourceful. Good fraud detection requires multiple strategies, including better customer recognition,” Kathleen Peters, senior vice president of Global Fraud and Identity at Experian, said in a company news release. “Simply put, the better you recognize your customer, the better you can recognize fraud.”
Increasingly, retailers are turning to the guaranteed fraud protection model in order to remove the friction from the buying experience and remove the fear from merchants’ hearts. Guaranteed fraud protection combines big data, machine learning and domain expertise to instantly sort legitimate orders from fraudulent ones. It also promises to make a merchant financially whole for any approved orders that later turn out to be fraudulent.
Merchants no longer have to agonize over orders or second-guess themselves. More importantly, the smart decision-making, powered by artificial intelligence, means legitimate customers are not insulted by orders that never arrive.
Instead of treating customers with suspicion, retailers treat them like celebrities, which in turn encourages shoppers to return again and again.
In fact, by removing friction and fear from the buying experience, you might say retailers are writing the first chapter of a beautiful love story.
Signifyd Lead Storyteller Mike Cassidy contributed to this report.