While the holiday season traditionally provides a key revenue surge for retailers, it’s also a prime time for fraud.
“The amount of fraud that we see is mind-boggling,” says Kenneth Sayers, director of credit for PC Mall Inc., an US$853-million retailer in Torrance, Calif., that sells hardware, software and consumer electronics, primarily through mail order and Web sites.
In November, PC Mall stopped US$1.1 million worth of fraudulent orders, bringing its yearly total to US$10.8 million. Last year, PC Mall stopped US$7.3 million in fraudulent orders.
The company’s Web site is a prime target for criminals. While Internet orders account for 25 per cent of PC Mall’s business, it generates 90 per cent of fraud attempts, he said.
Internet fraud is a widespread problem for retailers. Based on results of its annual survey of e-commerce crime, security company CyberSource estimates online crooks will make away with US$1.6 billion of 2003 U.S. business-to-consumer e-commerce revenue.
However, the potential for fraud is but one caution during what so far looks to be a strong online holiday shopping season. Other issues, such as Web site performance, also are keeping retailers on edge. Still, Forrester Research Inc. predicts online sales from the U.S. Thanksgiving to Christmas will grow by 42 per cent over last year to US$12.2 billion.
Meanwhile, money lost to fraud threatened to wipe out the operational savings PC Mall achieves with its Web business. “The cost savings we were seeing from having an Internet site where customers can place orders without human intervention — we were losing those savings on the back end to fraud,” Sayers says.
To combat this, PC Mall has honed over the last two years a three-tier system for catching fraudulent orders. Its first line of defence is a service from CyberSource that screens orders for suspicious entries, such as geographically mismatched customer information — an overseas IP address with a U.S. billing address, for example. The second and third tiers of PC Mall’s strategy depend on in-house systems that compare incoming orders with historical fraudulent and legitimate transactions.
The retailer is on track to reduce its losses this year, Sayers says. Last year the company lost a little more than US$1 million in fraudulent orders that it didn’t catch in time. This year, the company has kept its losses to about US$750,000.
“We’re definitely seeing huge improvements,” Sayers says. He attributes this not only to technology but also to training. “We keep on top of fraud trends and do a lot of staff training,” he says.
Keeping Web site performance up to snuff is another ongoing battle for retailers.
These days, online shopping sites are straining under the holiday load, according to Keynote Systems. The company’s E-Commerce Transaction Performance Index shows major online shopping sites experienced performance problems during the week beginning Dec. 1. The index — which measures the response time and success rate for executing a typical multistep online retail transaction on 13 of the most active e-commerce sites (such as Amazon.com Inc., Best Buy Co. Inc., Target Corp. and Wal-Mart Stores Inc.) — dipped at times during the week to as low as 80 per cent success rate, meaning that consumers could complete only eight out of 10 transactions.
AMR Research Inc. warns that today’s demanding Internet shoppers expect service to be better than or equal to their in-store experience, and overtaxed retail IT operations might not be up to the challenge.
Last year, almost 20 per cent of online customers surveyed reported a negative experience with at least one site and said they would not return to that site. Consumer dissatisfaction puts at risk between US$4 billion and US$5 billion of online retail sales in November and December, according to the research firm.
Urban Outfitters Inc. found its Web site wasn’t up to par, so the Philadelphia retailer invested in caching software from Warp Technology Holdings Inc. to speed performance.
“We always knew we had a bottleneck,” says David Hayne, a marketing coordinator at Urban Outfitters who is responsible for the retailer’s Web site technology. The company’s Web application servers have to refer to a back-end product database — which was not designed to handle Web processing — to display pages, Hayne says. The process slowed Web page views considerably.
This spring Urban Outfitters tackled the bottleneck with Warp’s SpiderCache software, which caches Web pages that need to refer most often to the retailer’s back-end server. So far, Urban Outfitters has seen its Web page display speeds increase by 40 per cent and its total page views increase by 58 per cent, Hayne says. Page views have jumped dramatically now that it’s easier and less frustrating for customers to browse Web content, he says.