Fraud Costs Retailers $100B Annually

November 11, 2009

This article is included in these additional categories:

Financial Services | Privacy & Security | Retail & E-Commerce | Trade Shows & Events

Consumer-facing fraud (fraud that doesn’t include insider or employee fraud) costs retailers $100 billion a year, according to the 2009 LexisNexis True Cost of Fraud [pdf] study. This dwarfs the $11 billion financial institutions lose and $4.8 billion consumers lose to consumer-facing fraud each year, writes Retailer Daily.

Identity Fraud Poses Serious Threat

Identity fraud causes a total of $48 billion in losses each year, shared among retailers, consumers and financial institutions, the analysis found. Overall, 20% of US. retailers reported an increase in identity fraud during 2008, with 46% of large retailers (those reporting more than $50 million in annual sales) and 24% of online-accepting retailers reporting increases.

In addition, an estimated 9.9 million US? adults, or approximately 4.32% of the country’s population, were victimized by identity fraud in 2008, LexisNexis said. As a result of identity fraud, 43% of consumers will avoid certain retailers, compounding losses resulting from lost merchandise, chargebacks and fees and interest by impacting potential future sales.

Friendly Fraud Plagues Online Retailers

“Friendly fraud,” or fraud committed by consumers who order and receive an item, claim it was never delivered and issue a chargeback, is a particularly growing threat for online retailers, according to the report.? When total fraud losses of retailers that accept online transactions are broken down, the largest portion, 35%, results from friendly fraud. This equates to 0.4% of total online retail revenue each year being lost to friendly fraud.

Another 24% of online retail fraud results from lost or stolen merchandise, 19% from identity fraud, 18% from fraudulent return/refund requests, and 5% from other types of fraud.

Credit, Debit Cards Lead Way

The report also stated that credit cards are the most common vehicle used to perpetrate consumer-facing retail fraud. Nearly one-fourth (24%) of all retailers, and 43% of large retailers with a significant online presence, reported increased credit-card fraud in 2008. Some 20%? of retailers, and 28% of large retailers with a significant online presence, reported increased debit card fraud in 2008. Only 1% of all retailers, and 3% of large retailers with a significant online presence, reported increased mobile payment fraud. However, considering how few retailers currently accept mobile payments, this percentage is worth noting.

Other Data Shows Increased Retail Crime

Other recent data also indicates that retail crime in general is on the rise. According to the fifth annual NRF Organized Retail Crime Survey (pdf), 92% of retail respondents were victimized by organized retail crime in the past year. This represents a 7 percentage point increase from the 85% of respondents who reported being victimized by organized retail crime in 2008.

A February 2009 Datamonitor report also indicates that retail shrink from theft, crime, and waste is having a damaging impact on retailers’ profit margins, with more than half the losses attributable to point of sale (POS) shrink – loss incurred through cashier error, theft, and fraudulent transactions. The report predicts that global retail shrinkage will climb to almost $115 billion by the end of 2009.


Explore More Articles.

Marketing Charts Logo

Stay on the cutting edge of marketing.

Sign up for our free newsletter.

You have Successfully Subscribed!

Pin It on Pinterest

Share This