Retailers across the United Kingdom could hardly say good-bye to 2019 fast enough.

The year was declared “the worst year on record” for retail sales by the British Retail Council, a fact that was evident to merchants up and down the high street and to those who saw sluggish online sales in the face of Brexit uncertainty. 

And so, it was on to 2020 — and into the teeth of an unprecedented global pandemic that had some longing for 2019. Most stores were forced to temporarily close in order to slow the spread of COVID-19. 

In contrast, e-commerce has seen tremendous growth depending on the retail category; and it’s been able to continue operation despite some supply chain complications. 

Online grocery sales were up by more than 82% the first week of April, compared to pre-COVID-19 sales, according to Content Square. Sales of electricals were up 42% at the end of March, Econsultancy reported.

Not only are strong online sales good news for retailers that have temporarily shuttered brick-and-mortar stores, they are a reminder that consumers will continue to buy — and that a time will come when the virus has passed. 

Moreover, Nielsen predicts that the increased dependency on ecommerce will become a permanent shift in the future as the world begins its return to normalcy — a new normalcy. 

Shopping habits adopte
d for COVID-19 will last long after the virus

In other words, it’s likely that a significant percentage of consumers will continue to shop in new ways that they discovered out of necessity during their weeks of sheltering at home — whether that shopping was for groceries, exercise equipment or apparel. 

As difficult as it might seem, given the need to establish a strong business continuity strategy for the present, merchants need to focus on protecting the shopping experience for the long-term, including the post-coronavirus era. 

The shopping experience was under attack well before COVID-19 became a household word. The pressure comes from all sides. Consumers are empowered: They want to be able to shop when they want, where they want and on the devices they prefer. To meet customer needs, retailers need to offer endless options by opening up their channels to click-and-collect and other seamless omnichannel options. 

Making buying easy for consumers also can make mischief easy for fraudsters who engage in digital shoplifting and cybercriminals who seek to harvest consumers’ personal information through data breaches. 

Retailers confront these challenges while at the same time facing relentless competition from digitally native retailers — who build direct-to-consumer relationships that foster strong loyalty — and powerful online marketplaces that enjoy tremendous economies of scale. 

Facing such a formidable series of challenges, prompts some retailers to become overprotective. They build barriers between themselves and their customers to avoid becoming victims of payment fraud and consumer abuse. 

Such measures appear to protect revenue by reducing fraudulent orders and preventing customers from making false claims that an order never arrived, for instance. But actually, those measures cause revenue to leak out of the buying funnel by foiling good orders, leaving good customers frustrated. 

Let’s take a look at how these measures can have a negative impact in real life. 

Marketing launches digital ads and promotional campaigns to attract consumers to a retail website. A relatively small fraction of those visitors go on to click “buy.” But, because of payment gateway rules governing transaction velocity, and the imperfection in some retailers’ fraud reviews, 10% or more of orders are declined in the authorization and fraud-review stages. 

Overly conservative fraud rules destroy customer lifetime value

However, some of those orders will have been placed by legitimate customers. 

An order, for instance, can be declined when a consumer enters an address that isn’t an exact match with the address on file — a relatively common occurrence in the age of thumb-typing on smartphones. 

Now those customers are frustrated and quite likely lost — perhaps for good. Marketing needs to go out and spend on digital ads and promotional campaigns to replenish the top of the buying funnel — a prospect that is far more expensive than retaining the customers the retailer won over in the first place. 

How serious a problem is it? One global electronics retailer came to us with a legacy fraud protection system that was rejecting 10% to 12% of its online orders. We were able to reduce that figure to less than 2% by removing fear from the equation. 

Retailers should look at their own fraud tools and processes. Experts can review and disable some rules and filters activated by payment gateways, e-commerce platforms and card processors to see what orders are not getting through. 

Once an order clears the payment gateways and internal fraud review, the leaking is not over. Some orders, delayed by long fraud reviews, aren’t shipped because items are out of stock by the time the order is ready to be fulfilled. That means another 1% or so of orders are declined 

Then you need to consider returned orders — which vary by retail vertical, but can easily run above 10% and as high as 30% or more for fashion retailers. And there are chargeback claims to deal with post-purchase. Before you know it, the initial set of customers that marketing acquired has shrunk by 30%. 

Seeing the revenue leakage problem is the first step in solv
ing it 

Revenue leakage is a difficult challenge because it’s often hard for an organization to get a comprehensive view of where the trouble spots are along the buying journey. 

Rarely does any one team — whether it’s marketing, payments, risk management, operations, finance or customer support  — see all the trouble spots. The teams often work in their own silos with their own data, which obscures the big picture. 

The first step toward plugging revenue leaks is breaking down the silos that obscure a clear view of the buying funnel. Freed from tunnel vision, the various teams can share the data and insights that they have to bring the problem into focus. 

That vision can lead to a dashboard that lays out the buyer’s journey and helps teams spot the leaks along the way. 

Next, retailers need to establish a revenue-leakage benchmark that shows them where they are in relation to the competition — competitors with similar average basket size and brand maturity. Retailers can then identify where they are underperforming and take steps to strengthen those weaknesses. 

There are factors at play in today’s retail climate that fashion retailers can’t predict, control or mitigate. They’ll always be with us in some form. But it’s evident that there are significant aspects of the buying funnel that retailers can control and improve.  

By marrying the right e-commerce platform with the right design, user-experience and risk-management practices, retailers can prevent revenue leakage and preserve lifetime customer value – placing them in an ideal position to flourish in the post-COVID retail renaissance.

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This article was originally published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.