Breaking News in the Industry: December 2, 2016

Shoplifting turns into police chase, crash, and arrests

The Clackamas County Sheriff’s Office says two Vancouver women were arrested after shoplifting at Clackamas Town Center, leading police on a high-speed chase and crashing their car in a driveway on Southeast 92nd Court. The two women, 19-year old Nina Jackson and 20-year old Chaniq Green, had allegedly filled two bags full of clothing at the Forever 21 store inside the mall, then left the store without paying.

One of the deputies responding to the theft call, spotted the suspects car driving north on Southeast Bob Schumacher.  When the deputy turned on the lights and attempted to pull over the car, Green accelerated away from the deputy at a high rate of speed. The deputy lost sight of the car, only to find it a short time later flipped on its top in a driveway at 11030 Southeast 92nd Court. Both Jackson and Green were able to get out of the car and run away but were arrested while trying to hop a fence of a nearby property.

After being taken to the hospital to be checked out for possible injuries from the crash, both were arrested and lodged in the Clackamas County Jail. Ms. Green (the suspect vehicle’s driver) was charged with Theft II, Hit and Run — Injury, Attempt to Elude Peace Officer X2
, Reckless Driving
. Her bail was set at $52,500. Ms. Jackson was charged with Theft II
 and Interfering with a Peace Officer. The alleged stolen property was recovered in the vehicle and returned to Forever 21.  [Source: KXL.com]

Amazon bolsters effort to protect brands from counterfeiting

Bloomberg, citing a source familiar with the matter, reports that the world’s largest e-retailer is developing teams to address counterfeiting in the U.S. and Europe and made the issue a top priority for 2017.

The teams will reportedly encourage more brands to register with Amazon, which will enable the e-retailer to require proof from its sellers that they have permission to market those brand-name goods. Amazon debuted a registry earlier this year for select brands and began implementing fees for merchants selling those items. Legitimate sellers argued that the price to sell such goods a, but Amazon said the system showed how seriously it takes counterfeiting.

Although Amazon long knew about the problem of cheaper, knockoff products, it generally relied on its sellers to identify and report them. Removing them from the marketplace entirely was, at best, a mixed proposition for affected sellers. The new effort reportedly follows a breakdown in talks with the National Football League and Major League Baseball about selling licensed merchandise on Amazon. The leagues were concerned about Amazon’s inability to account for fake goods.

Amazon also recently filed lawsuits on behalf of select merchants who were particularly hurt by the sale of cheap knockoffs on the website. “Amazon has zero tolerance for the sale of counterfeit items on our site,” the company told Bloomberg, adding that it is “aggressively pursuing bad actors.”  [Source: INDDST.com]

 

 

Fraud during the holiday shopping season is costing retailers $2 billion

While Americans are expected to spend a near-record $952 billion during the 2016 holiday shopping season, retailers will be plagued by about $2 billion in fraudulent returns, according to the National Retail Federation (NRF). That seems like a small number (if any number with nine zeroes in it can be considered small), but it’s a problem that hurts shoppers, stores, and even municipalities that lose out on taxes. Part of a $15.9 billion annual problem, return fraud hits consumers the hardest because ultimately, it’s honest people who are forced to pay the price for the criminal actions of others. “Certainly there’s a loss of tax revenue,” NRF VP of Loss Prevention Robert Moraca told the Chicago Tribune. “And every item stolen has to be replaced, and that’s passed on to the consumer.”

This is not a small problem
Overall, on an annual basis, total merchandise returns come to about $260.5 billion for retailers in the United States, according to NRF (opens in PDF). About 6.1% of that number is people either abusing the return process or making fraudulent returns (coming to the aforementioned $15.9 billion number). During the holiday season, the NRF estimates, overall returns come in at 10% (about 2% higher than the rest of the year). About 3.5% of those returns end up being fraudulent, a $2.21 billion problem. “Return fraud remains a critical issue for retailers with the impact spanning far and wide, in-store and online,” said Moraca in an NRF report. “While technology has played a significant role in deterring many in-person fraudulent transactions that would have otherwise gone unseen, there is little that can be done to prevent a determined criminal who will find a loophole one way or another. When it comes to retail fraud, retailers can build taller walls, but criminals continue to find taller ladders.”

How do the frauds work?
Thieves use a variety of scams to commit return fraud, but nine in 10 retailers told the NRF for its report last year that they have experienced people returning stolen merchandise. In addition, a little over 70% of stores told the trade organization that they deal with “wardrobing,” the practice of someone using/wearing an item then returning it. Other examples of return fraud and the percentage of retailers that say they have experienced them include:

The return of merchandise purchased with counterfeit money (75.8%)
Return fraud made by “known organized retail crime groups” (71%)
Employee return fraud or collusion with external forces” (77.4%)

“Retailers have the difficult task of providing superior customer service by always giving the benefit of the doubt to their shoppers when it comes to returns, while simultaneously working to make sure they protect their business assets” says Moraca.  [Source: Business Insider]

Why Retail Stocks Fell Despite Strong Holiday Sales

For some odd reason or several odd reasons, the mood on how the holiday season started for retailers shifted negatively somewhere during Sunday afternoon and extended into Monday. At first, the holiday season was seen as getting off to a festive start. Consumers stepped up big-time to buy strong deals on TVs, apparel and other electronics. Shopping was done from desktop computers, smartphones and to a lesser extent from inside stores. From my vantage point, things looked pretty darn good. The steady stream of data I was receiving from Thanksgiving Day through Sunday was consistently impressive … especially the sales numbers on mobile devices. This is incredibly impressive in that retailers have finally unlocked an untapped sales channel by improving the user experience and because of large phone screens.

The stores looked normal, traffic wise, over the weekend. By normal I mean they were normal for a start to the holiday season that is being fueled by online shopping. The number of out-of-stock incidents on pricey items such as Sony’s Playstation 4, Xbox One and Samsung TVs was running high, according to the data at my disposal. Indeed, that is a great sign on the health of the U.S. economy, particularly so soon after the contentious election cycle. But there were retail stocks on Monday selling off despite the clearly positive news. J.C. Penney (JCP) shares slid 5% on cautious comments from an analyst, which came despite the company crushing it on Thanksgiving Day and Black Friday. I was in a J.C. Penney store ahead of an opening, and the lines were insane, far stronger than a year ago. The traffic strength continued into Friday morning. Foot Locker  (FL) and Finish Line (FINL) got hit slightly even as sneakers remain a top-of-mind holiday gift. Best Buy (BBY) by all accounts began the season decently, yet its stock fell about 2% on Monday’s session. Companies that were perceived to be early winners were sold off, weirdly. I could understand Sears (SHLD) and Abercrombie & Fitch’s (ANF) steep selloffs as each struggled to drive traffic to their stores, but the profit-taking in winners was odd.

A few potential reasons for the selloffs:
•    Online sales are often less profitable for retailers as they have to ship the product to the consumer directly or to their stores for a customer to pick up.
•    Heavy discounts were needed to drive the strong online sales, which may have come at the expense of profit margins.
•    In spite of the improving U.S. economic backdrop, mixed traffic at physical stores over Thanksgiving weekend suggest people are still not in a place financially to shop both online and then buy stuff in the store a couple days later.
•    Fear that mild temperatures will trigger irrational apparel promotions in the final week before Christmas.
•    Outages on websites such as Macy’s (M) and Victoria’s Secret due to a traffic onslaught hint at potential issues in the final weekend ahead of Christmas, which ultimately proves costly to a retailer. Macy’s site outage was probably why the stock traded down on Monday.

The media is still reporting stories as if visits to retail stores are the single-most important barometer of the holiday shopping season. OMG if store traffic is weak, that means physical stores remain a burden — so let’s scare the heck out of investors holding retail stocks. Listen, bottom line is the very strong digital sales performance is a nice sign on how the holiday shopping season will shake out. People are shopping more than last year. Period. I would be prepared to buy winning retailers on any prolonged weakness stemming from concern over how the holidays will ultimately pan out. Names such as Dick’s Sporting Goods (DKS) (which may have a home run on its hands with its new Field & Stream hunting concept) and Target (TGT) make sense on a pullback, while Sears, Gap (GPS) , and Abercrombie not so much (the losers).  [Source: TheStreet.com]

How retailers can protect themselves against cyber threats this holiday season

Both brick-and-mortar and e-commerce retailers are tempting targets for cyber criminals, especially during the busy holiday season. Retailers such as Target, Home Depot, Michael’s and Neiman Marcus have all been victims of cybercrime, exposing the personally identifiable information of hundreds of millions of private citizens in the aggregate and costing these businesses hundreds of millions of dollars collectively on incident investigation and correction, including customer notification of compromised information, public relations and crisis management, and Payment Card Industry Data Security Standards (PCI-DSS) fines, penalties and assessments. Whether it’s point-of-sale (POS) security issues, distributed denial-of-service (DDOS) attacks, inferior information technology infrastructure or lax information security procedures, breaches are all unique in one way or another. However, retailers at large all face the same risk factors, with varying degrees of severity.

According to a recent report issued by BDO USA, all of the retailers surveyed cite cybersecurity as a potential risk to their business, a significant increase from 55% in 2011 and 26% in 2007. This is not surprising, given that the POS system, not the stored data, is often the main target of hackers. In the Target attack, which occurred the day before Thanksgiving 2013, the malware was designed to attack a POS device’s random-access memory (RAM) when information decryption occurred, immediately stealing unencrypted data from memory.

The Europay, MasterCard and Visa (EMV) system, while an improvement from credit and debit card magnetic stripe technology, is also vulnerable. Although EMV chip-card technology reduces in-person credit card fraud, if improperly configured, it may still be vulnerable to RAM-scraping malware. Further, EMV is an anti-counterfeiting software, not a network security solution: As such, it does nothing to guard against card-not-present issues or e-commerce attacks.
With DDOS attacks, online retailers also face the possibility of having their sites shut down and unable to process daily transactions. Recently, the Mirai malware attack on Dyn, an internet infrastructure firm, shut down dozens of well-known sites including Twitter, Amazon, Spotify, PayPal and Netflix. While a concern, DDOS attacks arguably pose less of a threat to retailers, as cybercriminals only benefit by the continuous flow of transactions (i.e., personally identifiable information) run through POS machines. If there is no flow of information, then nothing can be stolen.

What should retailers do to mitigate losses?
Use the most up-to-date POS hardware and software. Merchants who do not have secure technology in place (like EMV) can now be held liable. To address these security issues, retailers need to adopt a multi-tiered approach for securing payment card transactions, which includes implementing end-to-end encryption and tokenization, a process that replaces sensitive credit card data with a unique placeholder, in conjunction with support for EMV.  Have a proactive cybersecurity strategy. Assume the digital systems already have been breached. Consider the insider as much of threat as the outsider, and convert the external problem into an internal problem to be solved. A robust and proactive cybersecurity strategy should include both a Written Information Security Program (a set of comprehensive guidelines and policies designed to safeguard all confidential and restricted data) and an Incident Response Plan (a set of written instructions for detecting, responding to and limiting the effects of an information security event).

Remember that there is a difference between information technology and information security. Don’t expect your IT admin to also be an expert in cybersecurity. Rather, hire a security analyst who is purely focused on cybersecurity safeguards. Hackers are always going to be a threat to retailers: The only way to stay protected or ahead is to constantly update and upgrade your IT infrastructure and cybersecurity procedures. Purchase a cyber liability policy. For those instances when your company’s IT and security safeguards are unable to prevent a network security breach, insurance can be a backstop and help mitigate potential losses. However, when purchasing a cyber liability policy, it is imperative to have policy language that is explicit in its coverage for risks like network business interruptions, cyber extortion and PCI fines, penalties and assessments, amongst other nuanced areas of coverage available. The insurance industry is constantly adapting to evolving cybercrime, and policies are unique based on each individual insurance carrier’s appetite for risk and experience in this arena. As retailers consider cybersecurity exposures on an annual basis, they should give thoughtful review to their existing risk transfer program to assess potential gaps in coverage in consultation with their insurance brokerage partners. [Source: Retail Dive]

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