The rapid growth of omnichannel retail has ushered in new challenges and risks within the e-commerce sector, including issues such as fraudulent returns, payment fraud, and non-delivery losses. These risks necessitate robust strategies for loss prevention, which are critical for retailers looking to thrive in this dynamic environment.
To address the multifaceted nature of losses, it is imperative for retailers to gain a comprehensive understanding of the risk landscape they face. To this end, ECR Retail Loss enlisted the expertise of Adrian Beck, emeritus professor in the Department of Criminology at the University of Leicester, to develop an loss typology. This typology offers a valuable framework for comprehending the diverse ways in which retail businesses are impacted by losses in the e-commerce sphere.
The Proliferation of Omnichannel Retail: Navigating the Evolving Landscape of E-commerce Risks
Adrian Beck unveiled this innovative loss typology at NRF PROTECT, the premier event in the retail industry dedicated to professionals in loss prevention, asset protection, digital fraud, and cyber risk. The report serves as a blueprint for assessing the value associated with losses in various areas, shedding light on the true costs these losses impose on organizations.
Beck’s loss typology builds upon his previously established Total Retail Loss typology, offering a clear distinction between outcomes and events considered inherent “costs” of doing business and those categorized as “losses.” Furthermore, this typology effectively identifies, categorizes, and measures the array of losses associated with retailing.
Challenges Unique to E-commerce
E-commerce differs significantly from traditional brick-and-mortar retail, making it more susceptible to certain risks. One major factor is the rapid ascent . In 2019, e-commerce accounted for a modest 10% of all retail sales. By 2021, partly due to the pandemic, this figure had surged to 17% of total sales in the United States and roughly 30% of all transactions in the United Kingdom.
The pandemic’s impact accelerated the shift to e-commerce, placing considerable strain on retailers to adapt swiftly. Beck noted that during this period, there was an evident prioritization of sales over security. The limitations on the types of controls that could be put in place, coupled with the rapid growth, meant that loss prevention had to catch up with e-commerce.
For instance, recent data reveals that U.S. companies are losing 3.6% of their revenue to payment fraud, totaling $26 billion annually. Additionally, e-commerce retailers report expecting up to 3.1% of all their orders to be susceptible to chargebacks from financial institutions. NRF data further indicates that fraudulent e-commerce returns cost retailers up to $23 billion annually.
Moreover, e-commerce fraud and losses occur on a substantially greater scale and volume, often extending across international boundaries. Retailers are no longer merely dealing with local offenders but now face a global pool of potential wrongdoers. Information regarding potential vulnerabilities in an e-commerce system can also be disseminated rapidly across this expanded pool of offenders.
Harnessing the Power of Data
A significant advantage of the e-commerce retail environment is its wealth of data compared to traditional retail settings. For example, in the case of non-delivery fraud, retailers can leverage data to track each step of the delivery process. This data-driven approach empowers retailers to make informed decisions about whether to accept an order based on the available data.
Beck’s typology, accompanied by the report titled “Developing a Framework for Understanding and Measuring E-commerce Losses in Retailing,” is designed to assist retailers in comprehending the magnitude of losses associated with e-commerce. By providing clarity on the scale of loss, it equips loss prevention teams with a tangible goal to pursue.
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