In this post, I discuss what measures retailers can take to protect themselves without negatively impacting sales.
As consumers increasingly go online to make their purchases, luxury fashion retailers are poised to realize huge gains in eCommerce revenue. It’s estimated that the market for online luxury goods will be worth more than 20 billion euros by 2018. Moreover, the move towards digital purchases will only accelerate this trend. Last year, US consumers were expected to spend half of their budgets for luxury fashion and accessories online.
Riskified works with many luxury fashion businesses – including FarFetch, Vestiaire Collective, and Ssense. Our experience with these retailers has given us great insight into what card-not-present (CNP) fraud patterns look like within this industry. In this post, I share these insights and discuss what measures retailers can take to protect themselves without negatively impacting sales.
Luxury Fashion Merchants Should Be Accepting More Orders
Luxury fashion merchants often feel like they have a target on their backs because they sell high-quality, expensive, products that are in-demand and have a high resale value on the black market. Too often, this confluence of factors results in them adopting a conservative fraud strategy.
The reality is that it shouldn’t be this way. Riskified’s internal data shows that the online luxury clothes and accessories market is not nearly as fraudulent as merchants tend to believe. On average, Riskified is able to safely approve 93.89% of luxury fashion purchases. This means that retailers should be approving more than 9 out of 10 orders – a reality that flies in the face of conventional wisdom.
However, looking at even more granular data allows us to identify some situations where retailers should be approving purchases at an even higher rate.
The Myth of Fraud in China
China is one of the world’s biggest emerging markets, and one that is also becoming increasingly comfortable with shopping online. It’s believed that of the 618 million internet users in China, at least half of them made online purchases in 2015. And when they do, they are usually buying luxury fashion goods. Accessories & apparel were the top categories of products purchased online by Chinese consumers in 2015.
Retailers should not let a fear of fraud hold them back from taking full advantage of this burgeoning market. But unfortunately, they do. In fact, Riskified is able to approve 3 out of 4 luxury fashion orders paid for with a Chinese credit card that retailers had planned to decline. That means that the average luxury fashion retailer is turning away 75% of legitimate Chinese orders.
It’s also important for retailers to understand that the demand for luxury fashion is fueled by China’s emerging consumer class. These are individuals that work, study, and travel all over the world. The result is that on average, we are able to approve more luxury fashion orders paid for with Chinese credit cards for shipment outside of China than we are for those for shipment within China. In other words, while a billing/shipping mismatch is normally used as an indicator of fraud, the reverse is actually true for China.
Mobile Orders Are Safer
Another important trend for luxury fashion retailers to take advantage of is the shift to mobile. Although this technology is still relatively new, it can no longer be ignored. Mobile sales now make up 30% of the entire US eCommerce market. That’s why it’s increasingly important that retailers understand what m-commerce fraud looks like.
Not only is this a huge opportunity, but it is also a safe one. Riskified is able to approve over 98% of the luxury fashion orders we receive through this channel. While no one knows what the future will bring, mobile orders are currently 4x less likely to be fraudulent than desktop orders. This means that failing to approve the vast majority of mobile orders will result in retailers leaving money on the table.
Good Customers Use Reshippers Too
It’s commonly believed that the use of a reshipper is an indicator of fraud. We addressed how this false assumption can hurt international sales in detail in a previous post. When it comes to luxury fashion, the potential for this misconception to cost retailers revenue is no less severe.
The reality is that Riskified’s data shows that 75% of luxury fashion orders with reshippers are valid. That means that luxury fashion merchants who are not accepting 3 out of 4 orders that use reshippers are costing themselves money.
False Declines Hit Luxury Retailers the Hardest
False declines have a huge negative impact on all retailers, but for luxury fashion retailers the devastation is particularly acute. Consumers who make luxury fashion purchases have a very high lifetime value for retailers who can capture their business and loyalty. But this cuts both ways – 60% of affluent consumers reduced patronage of a business that falsely declined them, and 30% quit shopping with the retailer entirely.
In other words, every time a luxury fashion retailer falsely declines a purchase they lose not only the revenue from that purchase, but also a lucrative lifetime opportunity. That is why it’s so essential for luxury fashion businesses to understand the patterns that characterize legitimate eCommerce purchases.
Unfortunately, this is often not the case. A 2015 survey by the Merchant Risk Council showed that the majority of eCommerce merchants believe that less than 5% of the orders marked as fraudulent were in error. However, Riskified is able to safely approve an average of 66% of the orders we receive from retailers (across all industries) that were marked as fraud. This suggests that the false decline problem is much bigger than retailers would like to believe.