The impact of supply chain shortages on retailers and fraudsters

Written by Aaron Begner, GM of EMEA, Forter 

Recent supply chain disruptions in the runup to the Christmas retail season were widely documented. These disruptions are threatening to cause low stock levels and could see some retailers without products at peak trading times.

Recently, Amazon issued an urgent warning to consumers that if they wanted to see gifts arrive in time for Christmas they should order at least four weeks earlier than usual because of these anticipated delays. Amazon claims this is because of the UK’s HGV driver shortage, which has been exacerbated by rule changes to Britain’s post-Brexit immigration and tax rules, leaving companies dealing with backlogs at shipping container ports.

As competition for highly sought-after products starts to grow, retailers may see two major effects:   

  1. An increase in fraudulent activity
  2. An increase in policy abuse from customers

Both of these will impact retailers’ ability to maximise revenue throughout the year.

Supply chain shortages increase fraudulent activity

When there is a prolonged period of supply chain disruption and shortages in the market, the knock-on impact is an increase in the proportion of transactions that are fraudulent. This is not necessarily because there is more fraud, but because fraudsters are competing for fewer products. Larger retailers will have access to bigger inventories; therefore fraudsters will focus on these retailers, targeting them with more sophisticated deception methods.

Clever fraudsters often mask their identity and buy products from multiple territories at highly competitive prices in order to get hold of stock in short supply. Fraudsters are increasingly doing this through bots that imitate human user behaviour and – because they are automated – they operate much faster than genuine customers buying goods. Fraudsters then resell these products through marketplaces. These bot attacks often overload websites, slowing them down for legitimate buyers. As a result, manufacturers are threatening to withhold supply volumes from retailers and marketplaces if they do not have proper fraud prevention controls in place to prevent this type of activity.

The impact of supply chain shortages on policy abuse

Additionally, as customers panic over product shortages this increases policy abuse. Worried consumers start to order the same items from different retailers to make sure they get the goods they want with the intention of sending back any unwanted items. During supply chain shortages, retailers may be forced to limit the number of goods that a customer can buy.

Shortages in supply not only impact the retailer’s revenue, as they have fewer goods to sell, but often the overall price of goods starts to increase. In today’s instant gratification age, consumers can be incredibly fickle, and because of shortages they may start shopping around for deals meaning, as demand grows, the price becomes inflated.

In a market where there is limited supply, it is important that retailers ensure that products go to customers who are not going to abuse their policies. Smaller retailers will be more cautious about order fulfilment so they don’t lose margins on returns and identifying the right customers will be critical.

The bottom line impact of policy abuse is stark

The impact of COVID-19 has seen policy abuse increase, now with the threat of less stock, retailers will have to put in place more punitive restrictions to ensure that they maintain revenue forecasts. However, they face the challenge of supporting customer experience and balancing extended returns windows while deciphering the actions of those that are abusing policies.

The magnitude of policy abuse has already been growing. As retailers compete for customer attention by offering more flexible policies, the surface area for abuse grows. Recent Forter research found that 89% of firms have suffered at least one type of policy abuse and every form of abuse is growing: 78% of firms have seen promotions abuse grow; 76% INR; and 66% returns abuse. As a result, retailers are losing up to 2.2% of revenues to policy abuse a year, totalling an estimated £64 billion. 

Retailers face a fine balancing act

Product shortages combined with the increased threat of fraud and policy abuse is going to put significant pressure on retailers in the run up to the peak retail season. Consequently, retailers have to balance offering customers a flexible returns policy to enhance the customer experience, while deciphering the actions of those that are abusing policies. They must ensure that they have stock to meet customer demand, while differentiating between legitimate customers and fraud.

Throughout this, it is important for retailers to keep customer communication constant, helping to oil the wheels of the customer experience. Cart abandonment can be high and effective customer service will be critical. With longer fulfilment times, consumers will likely request more chargebacks if delivery targets are not met. Additionally, owing to the impact of COVID-19, customer service teams could have fewer staff to deal with complaints. Customers worried about not receiving items will want to call customer service to solve problems, and if they can’t do this the chances are they will cancel their transaction.

Forter’s research highlighted that one of the biggest barriers for retailers in addressing abuse is the inability to act at scale. 53% of respondents cited this as a significant challenge and 32% noted ‘inability to block repeat abusers’ as an issue. 

During peak times this is amplified and while retailers aspire to solve this problem, the research highlighted that this is not a core competency, with 37% of respondents admitting that they don’t automatically track the magnitude of abuse-related losses, with 39% having to manually identify repeat abusers.

Panic consumer behaviour increases policy abuse and fraud

Building customer loyalty through enticing retail policies can leave retailers exposed to exploitation and misuse and during busy retail periods, with the added complexity of supply shortages, this is compounded with panic consumer behaviour, leading to policy abuse and higher incidence of fraud.

Retailers should look to partner with an organisation that can provide insight into the magnitude and types of abuse that they are facing and who can help adjust policies that strike the right balance between preventing fraud, limiting policy abuse and delivering exceptional customer experiences.

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