Ecommerce revenue for fashion merchants has been growing at an average of 17.3% annually over the last six years. In 2016 it was worth $73 billion in the US alone, second in sales value only to consumer electronics. While the preference for purchasing online is somewhat universal (global eCommerce will likely top 4 trillion by 2020), the trend is particularly pronounced in the fashion industry. Big names like Ralph Lauren, Guess, Aeropostale, and American Eagle are all in the process of scaling back their number of brick and mortar locations to devote more resources to eCommerce.

But the rapid increase in online order volume also means more fraud attacks, and fashion retailers face a slew of unique challenges when it comes to efficiently vetting these orders. The higher order load leads to strain on fraud review teams, particularly because of the industry’s high share of cross-border orders, which can be more difficult to process. Riskified’s data shows that from 2015 – 2016, cross- border sales as a share of all transactions across the fashion industry, increased from 38% to 44%, a trend we expect to continue – meaning it’s more crucial than ever for merchants to be comfortable processing international orders.

Perhaps even more harmful than fraud, however, are false declines. In an effort to avoid costly chargebacks, fashion merchants tend to decline high rates of legitimate orders. Most fashion retailers are aware that they’re losing serious revenue due to false declines, but their detection systems simply aren’t equipped to deal with the problem. For example, automated rules-based systems may decline good orders to certain countries simply because they aren’t sophisticated enough to detect nuanced shopping patterns that could help them safely approve orders.

Some retailers attempt to raise approval rates by routing difficult orders to manual review, which can lead to a whole new set of issues – such as customer friction and long turnaround times. These can spoil the online shopping experience and drive customers elsewhere. This is especially harmful in a highly competitive vertical like fashion, where many merchants sell identical products. The last section of this report explores the order segments that are most commonly being falsely declined and costing fashion retailers billions of dollars each year.

Riskified has extensive experience managing fraud for global fashion retailers, including companies like SSENSE, Burlington Coat Factory, Rebecca Minkoff, Canada Goose, Vestaire, Burlington, ALDO, Flight Club, and FarFetch. We analyzed our transaction data to compile this report on fraud trends in the fashion industry. We hope it will help fashion retailers gain perspective into the fraud patterns that are unique to their vertical, as well as insight into the issue of false declines.