Hidden Costs Associated with Retail’s Pursuit of Omnichannel Experience


The argument in retail states that if you want to build a brand and sales then the customer “experience” needs to be consistent, seamless and connected from one channel to another. Welcome to the world of omnichannel retail.

Today’s customers have real-time information and purchasing power at their fingertips—literally. Customers can download coupons, check prices and purchase products in a store, via a kiosk, desktop computer, mobile app or directly over the telephone. By uniting user experiences from brick-and-mortar to mobile-browsing and everything in between, retailers can engage their customers, increase brand loyalty and drive sales. To put this in perspective, according to a recent survey by the National Retail Federation, 59 percent of holiday shoppers had planned to shop online this year, marking the first time that online shopping was preferred to walking into a mall or retail outlet. Regardless of the retail channel or device used, omnichannel is now the standard which retailers must support with the goal of creating the same experience regardless of the device that the customer is using.

For many retailers, the rush to develop their omnichannel retail strategy has left them exposed to a number of hidden costs and lacking fundamental fraud prevention within a number of their channels. According to a published report, while “more than 90 percent of retailers allow their customers to shop across purchasing channels, only about 46 percent are actually using fraud management solutions across all those channels.”

This lack of preparation combined with the hidden costs of fraud—including friendly and criminal—spell trouble for retailers. By adopting an omnichannel strategy, retailers are exposed to increased fraudulent activity and chargeback programs, not to mention the drain on resources to manually review increased orders. Below are a few factors that make omnichannel ripe for fraudsters:

Card Not Present (CNP) Fraud: Whenever you are dealing with a CNP scenario, your organization is exposed to increased risk of fraud. Because CNP fraud is anonymous, fraudsters exploit this channel with ever-changing fraud tactics and vigor. CNP fraud places the onus on the retailer to identify and stop fraud before it occurs.

BOPUS: A recent trend is buy-online-pick-up-in-store (BOPUS). In this scenario, customers can order in a CNP environment (mobile device, laptop, etc.) and then pick their order up in the store. When a retailer’s backend systems (fraud prevention and order fulfillment) are not seamlessly connected, fraudsters can exploit one channel against another. For example, a retailer might be attacked by fraudsters who order merchandise with a stolen credit card online while standing in the store. Once the fraudulent order has been accepted, the fraudster simply picks up the item in store. This instantaneous fraud occurs because the in-store and mobile application’s backend solutions are not connected. By the time the retailer realizes it is a victim of fraud, the fraudster has left the store with the stolen merchandise and the retailer is left to absorb the cost of the lost product and forthcoming chargeback.

Transaction Speed: Part of the customer experience is the speed at which transactions need to occur. The standard for approval is now instantaneous. This, too, places the onus on the retailer and its fraud solution to instantaneously certify the identity of the customer and confirm with a high level of probability that the transaction is legitimate.

Mobile Payment Options: To deliver an omnichannel experience to customers, retailers must support multiple payment options. While payment platforms continue to change, the retailer must ensure that each of them is protected by the same level of security that is on a company’s e-commerce site.

Micro Center Computers & Electronics is a billion-dollar-plus company with web sales in the hundreds of millions. As Micro Center’s online sales grew, they began to experience fraud at an accelerated rate. According to Skip Myers, director of loss prevention at Micro Center, “to fight increasing theft and hold down chargebacks, our manual reviews became more exhaustive. But they were a burden on resources and detrimental to customer service and sales. We decided to re-evaluate our internal processes, review our corporate fraud strategy, and establish a dedicated team to fight credit card fraud at its source.” Myers’ attention to stopping fraud and mitigating the associated costs is a microcosm representation of how omnichannel retailers must approach this new paradigm shift.

Omnichannel retail will continue its evolution. Today, those finding the most success with omnichannel are those retailers that have the resources and budget to support its delivery, its maintenance and its hidden costs. As technology continues to be developed, sales channels that were once elusive will be viable options for nearly every retailer. And as the market matures, so will the tactics of the fraudsters and those that are responsible for stopping fraud, making fraud detection more important than ever.