Table of Contents

Introduction

The last decade has seen sneakers ascend from simple sportswear to coveted fashion items, and the sneaker industry is booming as a result. The global athletic footwear market is projected to be worth $83.2 billion in 2017, and to maintain a 2.5% annual growth rate thereafter. A disproportionate amount of this growth is happening in eCommerce; sneaker leaders like Nike and Under Armour reported big gains in eCommerce revenues in 2016. The popularity of sneakers has even led to the emergence of secondary online marketplaces, which are estimated to be worth a combined $1 billion.

But increased demand has brought with it unique fraud challenges for online sneaker retailers. The resale market, as well as their high collectible value, make sneakers sought-after items for fraudsters, and high fraud rates across the sector reflect this.

Additionally, the increased growth of cross-border eCommerce has led to strain on fraud teams, as international orders are particularly challenging to process.

Most sneaker retailers are aware of the high levels of fraud, but their prevention systems fail to detect it efficiently. Automated rules-based systems tend to broadly decline orders to certain countries or reshippers, leading to high false declines rates. Unoptimized rules mean retailers review too many orders manually, which often involves reaching out to customers to verify their identities. This friction can spoil the online shopping experience, and tends to be especially costly in the highly competitive sneaker vertical where many merchants sell identical products.

Compounding retailers’ difficulties, the constant release of new sneaker models creates regular order spikes. As a result, manual review teams face the strain of holiday volume surges not just seasonally, but all year round. During these releases, many retailers enact one-pair-per-customer rules, which lead shoppers to disguise their identity in attempts to overcome these policies – creating order behavior that

is difficult to distinguish from actual fraud. The unusually large share of teen and millennial shoppers also brings its challenges: according to Riskified’s data, at least 15% of sneaker chargebacks are friendly fraud, a type of fraud often associated with younger shoppers.

Riskified has extensive experience managing fraud for global online footwear and sneaker retailers, including Fortune 500 companies. We analyzed our extensive transaction data to compile this report on fraud trends in the sneaker industry. We hope it will help sneaker retailers gain insight and perspective into the threat they face, and increase their processing accuracy and efficiency.