The Home Goods Industry's Digital Transformation - RISK & REWARD
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RISK & R E WA R D The Home Goods Industry’s Digital Transformation
Big and big-ticket items for the home RISK & REWARD
are moving online, but retailers are
Fraudsters focus on fast-growing
keeping the showroom
appliance sites
Despite tough times for retailers in general
and the always fickle housing market, online The rapid growth of online sales has not gone
merchants selling appliances, furniture and unnoticed by fraudsters who thrive on growing
home improvement products hardly appear to online traffic and conversions. When online
be faced with a retail apocalypse. operations are growing quickly, fraud protection
often becomes an afterthought — at least until a
retailer gets hit with an orchestrated fraud attack.
When it comes to same-store sales, big box do-
it-yourself stores like Home Depot are leading Given the prices of furniture and appliances,
the way in growth. The industry is also upping merchants can lose hundreds or thousands of
its online game with augmented reality that lets dollars on one fraudulent transaction. And given
shoppers see furniture in their homes and by the sophisticated nature of today’s fraud rings,
providing click-and-collect options that turn in- it’s not likely that fraudsters would stop at one
store buyers into online buyers. transaction once they’ve identified a weakness.
One thing that recent months have made clear The danger for merchants is that they will
is that whatever their motivation or methods, overreact and begin denying an increasing number
consumers are becoming more comfortable of legitimate orders because of the fear of fraud.
buying items such as refrigerators, DIY tools
Appliance, furniture and home improvement
and materials and even sofas online.
merchants are making progress in the area of false
declines, Signifyd’s Ecommerce Fraud Index found.
The shift is opening up new opportunities for The report pointed out a steep decline in stolen
pure-play ecommerce outlets as well as the financial fraud losses in the category between the
traditional retailers that are now venturing online. first quarter of 2016 and the fourth quarter of 2017.
Indeed, both camps are moving to multichannel
strategies to give consumers the immediacy, The report attributed the reduction, which saw
convenience, and low prices they crave while losses drop to 2.74 percent from 5.65 percent,
allowing them to view and “test drive” products to a reduction in the volume of false declines
in person. in the sector. False declines are a factor in the
fraud rate because the fraud index defines fraud
Naturally, where money goes, fraudsters follow. losses as as the percentage of total orders that
When it comes to furniture and appliances, were identified as fraudulent — whether they
were shipped or detected and declined.
especially with the increasing popularity of click-and-collect buying options for larger items,
cyber criminals are specifically targeting durable goods, which they then resell on the internet.
Picking up online orders in stores allows fraudsters to use stolen credit card numbers without
having to provide a delivery address that doesn’t match the account’s billing address.
In this report, you’ll learn the latest trends in the appliances, furniture, and home improvement
market and see how online fraud is threatening this particular industry segment.
Appliances: the online channel is strong and growing
All last year we read sobering headlines about traditional appliance stores. In addition to
hhgregg filing for bankruptcy, Sears — which virtually owned the appliance sector for decades
— reported decidedly disastrous sales along with its decision to close 265 stores.
Yet overall, appliance sales are killing it. There are a number of reasons for the strong
performance. First, the appliance market is currently in a replacement cycle. The sector saw
record-breaking sales from 2004 to 2006, before the Great Recession of 2008 hit. Now, as
the economy recovers, consumers are looking to replace some of those aging products.
Need is not the only thing driving the market. There is a big want factor. Manufacturers
have introduced some very cool and forward-looking smart products — internet-connected
refrigerators, ovens, and cooking gadgets — so the appliance business is not just about
replacements. These “aspirational” offerings are prompting consumers to buy new appliances
with the latest innovations.
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Fraudsters focus on high-priced appliances
Consumers are becoming more accustomed to the idea that
technology exists to make their lives better. With the rapid innovation
of the Internet of Things and leaps forward in the use of embedded
technology in everything from refrigerators to mattresses, they are literally
bringing technology home with them.
And while security is the focus of many who are building the Internet of Things, the growing
role of such devices in our lives also means that consumers are more freely sharing information
about themselves — information that could be misused if not properly protected.
Signifyd’s Ecommerce Fraud Index noted a spike in account takeover fraud in the furniture,
appliances and home improvement sector in 2017. The category of fraud had dropped to a very
promising point below .1 percent early in the year. But it soon shot up to nearly .6 percent later
in the year.
Perhaps the increase wasn’t that surprising, given that Signifyd found that account takeover
fraud had increased across all eight retail verticals studied in the fraud index.
In fact, account takeover overall increased 80 percent between 2016 and 2017.
H O ME GOOD S 3
What does this mean for online sales? Massive growth, as consumers increasingly buy appliances
large and small via ecommerce. This was the case in the United States beginning at least a couple
of years ago.
Consumers shopping for furniture, appliances and home improvement products spent $4 billion
online in 2016, up 38 percent from the year prior.
“Online shopping has become an important retail channel for all consumer purchases,
including large purchases like major home appliances,” Joe Derochowski, the home industry
analyst at The NPD Group, said in a news release that details the sales growth. “Shopping
online for a major home appliance enables consumers to explore a wide range of feature
and pricing options across a variety of retailers in less time and with just a few clicks.”
“Online shopping has become
an important retail channel for
all consumer purchases, including
large purchases like major home International sales
appliances.” trending up
Online retailing is also booming
internationally. Vietnam and India are among the
top 10 global markets leading internet retailing growth—
mainly in the appliance sector. Vietnam recorded the largest
growth globally, as online retailers in that country worked hard to deal
with delivery challenges, including logistical issues and payment concerns.
Ecommerce is an attractive option for consumers in both Vietnam and India because
appliance prices are 15 percent to 20 percent less online than in brick-and-mortar shops. Cash on
delivery or click and collect are the typical methods of payment.
Mobile commerce is very popular, accounting for 30 percent of online appliance sales. In China, online
sales of consumer appliances has grown 37 percent over the past five years. The reasons: substantial
price cuts for online appliances and the growing popularity of convenient mobile payments.
The growth of the consumer class in developing
countries is a rich opportunity for U.S.-based retailers, though expanding into new markets comes
with its own challenges. Merchants looking to expand internationally need to consider shipping
costs; customs, tariffs and tax levies; local tastes and the added vulnerability to fraud that comes
with opening sales to customers with whom they have no order history.
Multichannel strategy is essential
Despite the encouraging growth of online appliance sales, a PricewaterhouseCoopers survey found
that most consumers would still prefer to buy appliances in a store — 56 percent said they preferred
brick-and-mortar buying compared to 33 percent who opted for online. Many consumers are still
nervous about buying major appliances via ecommerce and want to see, touch or try furniture in a
physical store before buying.
As a result, pure-play online furniture retailers are developing physical locations to offer multichannel
shopping experiences. These aren’t stores, but showrooms, where consumers can try out products
and ask questions. Then they are encouraged to make their purchases online.
Alternatively, so-called “click and brick” companies are traditional retailers that establish online
stores. In fact, traditional retailers are aggressively working to blend their online and in-store
RISK & REWARD
Overall, appliance, furniture and home improvement
retailers are making progress
Though Signifyd’s Ecommerce Fraud Index found that overall fraud across eight verticals had increased
by 7 percent between 2016 and 2017, the rate for appliance and furniture sellers actually declined during
the same period.
Total fraud losses in the appliance, furniture and home improvement category declined 16 percent
between 2016 and 2017, the index found.
“These early losses,” the report says referring to 2016 trouble for retailers in the category, “are negated
by the dramatic improvement merchants have made with their fraud-prevention strategies.”
H O ME GOOD S 5
channels to provide consumers with a bevy Pragma’s survey found that:
of options regarding shopping, delivery and
pickup. • 48% of consumers researched in store
• 49% of those consumers purchased in store
Consumers can order furniture, appliances • 45% of consumers researched online and
and home improvement online and pick up • 24% of those consumers purchased online
from physical stores. The practice has given
the world the whimsical abbreviation BOPIS, All that said, the gap between consumers’ online
for buy-online-pick-up-in-store. Home Depot, and in-store preferences narrows every month.
Walmart, Lowe’s, and Staples and many others
offer BOPIS. In fact, 45 percent of Home Amazon: always a force to be reckoned
Depot’s online orders are picked up in store. with
For now, brick-and-mortar stores still have an Amazon might not be the first retailer to come to
advantage. Although about half of consumers mind when you think of appliances, but as with
research their purchases online, only about all of ecommerce, the Seattle-based behemoth
half of those end up buying online, according is a major force in the category. In fact, Amazon
to Pragma Consulting. receives more search clicks in the appliance
space than any other retailer, according to a
Instead, furniture shopping is a rich mixture of Connexity study.
online and in-store research.
As the weather begins to warm in much of the
country, it’s no surprise that Amazon sees its
biggest increase in searches in the barbecue
grills and air conditioners categories, Connexity
found.
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Appeal of furniture for fraudsters “Once you have an idea of the industry that it’s
going to go to – whether it’s going to go to a
Fraudsters are constantly refining their craft, regular consumer or it’s going to go to a business –
changing their strategies and tactics in an effort then you know where to start looking,” she said
to be unpredictable. For instance, furniture and of getting an investigation started.
appliances might seem like odd items to be on She talked to Signifyd about a case in which
a fraudster’s shopping list. she was tracking $8.2 million in stolen office
equipment. The trail led to a series of warehouses
They tend to be big, bulky and hard to transport. that the fraud ring used, including one that served
But sophisticated fraud rings operate like any big as a showroom and sales outlet for the stolen
enterprise with organized shipping and receiving goods.
plans. They even focus on channels, selling some
items B-to-B and others B-to-C, according to Not only were the fraudsters hiding in plain sight,
Whitney Joy Smith, a Canadian private detective, they’d also come up with a practical way to store
who spoke to Signifyd about her work. and sell the large items they’d made off with.
The company is not resting when it comes to furniture, either. Amazon is apparently building
warehouses designed specifically to handle bulky household items, PYMNTS.com reported. It is
rolling out a custom furniture design service, PYMNTS.com says, and it intends to promise one-
day or two-day furniture delivery in some parts of the country.
Amazon will no doubt continue to grow in the appliance space as shopping for appliances online
becomes more and more common — and as shopping on Amazon continues to grow.
One bit of Amazon domination evidence: On Amazon’s third annual Prime Day, held in the summer
of 2017, the company saw a record-breaking volume of orders that was 60 percent higher than
the previous year.
The number is impressive, but it has not deterred Walmart, which has been working hard to
bolster its online offerings in the age of Amazon. Early in 2018, Walmart announced that it would
be revamping its website to include a
section dedicated to furniture and
home goods.
The site will include a
RISK & REWARD
landing page that
features furnishings Beware of false declines while managing
presented in online furniture fraud
scenes of fully
decorated Those selling furniture and appliances online find themselves in a high-
rooms, CNBC risk category when it comes to fraud, according to Signifyd’s latest data. The
reported. company’s latest Global Fraud Index found that fraud rates for high-priced items
were on the rise.
While fraud rates for items priced under $100 declined in the period covered by the
latest fraud index, they rose from 10.93 percent to 11.47 percent for orders over $500.
And while the specter of online fraud is a big concern for online sellers in the furniture,
appliance and home improvement sector, it turns out that they face a bigger, fraud-
related problem.
Research by the Aberdeen Group, commissioned by Signifyd, found that fear of fraud, in
the form of declining legitimate orders to avoid suspected fraud, is a much bigger cost
to retailers in the industry than are the chargebacks that result from shipping fraudulent
orders.
In fact, the group determined that falsely declined orders have an impact that is 34.6
times the impact of shipping bad orders, according to “Quantifying the Total Cost of
Ecommerce Fraud: Home Improvement.”
“Merchants in the home improvement market segment have a specific opportunity to
make better, faster and more cost-effective decisions about fraud to increase their
efficiency at minimizing fraudulent transactions, and to improve their capabilities
for maximizing legitimate transactions,” the report says.
Retailers in the category should take a closer look at the way they handle
fraud, while also exploring the latest tools available from the leading
fraud protection companies, the report concludes.
H O ME GOOD S 7
RISK & REWARD
Resale value is the key for
fraudsters
While it is logical to assume that fraudsters
shoot for high-priced items, this is fraud we’re
talking about. And remember, fraudsters want
to keep merchants guessing.
Not only that, but fraudsters are often most
Furniture: An industry in transition focused on how easily they can resell their
stolen goods on the open market or by creating
Furniture is a retail category with nothing but
a phony Amazon or eBay merchant storefront.
potential when it comes to ecommerce. As recently
as 2015, Furniture|Today was reporting that 70 “They’re trying harder and harder and
percent of furniture retailers hadn’t yet turned to they’re getting better at looking like a normal
ecommerce in a meaningful way. shopper,” Jamie Ceccato, risk team lead at
Build.com, said of modern-day fraudsters.
That said, the ecommerce component of furniture “It’s all about trying to get something shipped
and home goods is growing at breakneck speed. and something they can easily resell.”
Home Furnishings Business reported that the
percentage of furniture sold online increased from Sure, fraudsters are still into electronics
6.6 percent in 2009 to 15.3 percent in 2015. and jewelry. But they also know that everyday
replenishables, like diapers, baby formula and
Appliance sales are showing an even more dramatic pet food, can be fast sellers. Consumers know
the regular prices for things they buy often
shift. The NPD Group says every major appliance
and they will jump on a bargain.
category saw year-over-year online sales growth,
with the category in general experiencing a 38 And fraudsters know that everyday items
percent growth rate. that everyday shoppers buy raise less
suspicion among those charged with
Online sales of refrigerators, the largest category protecting the business from fraud.
in the appliance area, were up 30 percent.
Ovens, which are moving online faster than other Just how does that play out? Ceccato
appliances, saw the biggest growth with a 69 talked about a fraud attack that almost went
percent increase, according to NPD. unnoticed because the item at the center of
the theft was so mundane. And yet, suddenly
In fact, PYMNTS.com, citing the Wall Street Journal, Build.com, a major home improvement retailer,
says that furniture is the second fastest growing was receiving an unusually high volume of
orders for the item.
online segment in the United States, trailing only
groceries. Given its growth rate, total online sales The product? A Kohler toilet seat.
of furniture is projected to surpass electronics by
2018. So when it comes to fraud don’t just worry
about the shiny objects. Unless, of course,
they happen to be a length of pipe or a
polished bathroom faucet set.
Furniture sales are growing; online With more sales moving online, many
furniture sales are growing faster traditional furniture retailers, especially high-
end ones such as Williams-Sonoma, are
The Fung Business Intelligence Centre on investing significant sums in their online
Global Retailing estimates that the overall businesses. Even Restoration Hardware, now
furniture market in the United States, which known a RH, which has made a splash with its
stood at $96.4 billion in 2014, will grow to $111 brick-and-mortar and print catalog strategy,
billion by 2019. ecommerce, it said, will be relies on online revenue.
responsible for a great deal of this growth.
Traditional furniture retailers now get a
eMarketer predicts that U.S. online sales of substantial percentage of their total revenue
furniture will reach $32 billion by 2018. The through ecommerce. Brick-and-mortar stores
category’s 11 percent compound annual growth that aren’t going multichannel are losing
rate will continue to erode brick-and-mortar’s market share to them, as well as to dedicated
share of sales. Statistic is much more optimistic internet-only retailers that offer low prices.
about online furniture retailers, projecting that
global ecommerce furniture sales will increase Wayfair is the only publicly traded online pure-
by a five-year compounded growth rate of 15 play furniture company that has achieved a
percent to reach $220 billion by 2020. significant size. Although Wayfair is growing
rapidly — with 39 percent increase in sales in
Fueling this growth is the fact that in recent late 2017 —the company is still unprofitable, in
years, a number of pure-play online furniture significant part due to its aggressive strategy
retailers have emerged as a force, notably in building its fulfillment system. Wayfair’s
Wayfair and British upstarts Made.com and story is one sign of how difficult it can be to
Loaf.com, which are flourishing, especially conquer the online channel in furniture.
with millennial mobile shoppers.
In comparison to the high growth rates of
And as consumers become more reliant on, online furniture sales, the annual growth for
and more comfortable with, mobile devices, all types of furniture retailing (from stores and
the nature of digital furniture shopping is online) has ranged from just 1.5 percent to 3.5
changing. Shoppers increasingly use mobile percent per year.
phones to buy, with mobile sales increasing by
67.9 percent between 2014 and 2015.
By 2020, Statista projects that mobile
commerce will make up nearly 50 percent of
ecommerce sales, up from 20.8 percent at the
end of 2016.
H O ME GOOD S 9Innovation attracts discerning Home improvement: ecommerce
consumers playing ever-larger role
As we said, consumers are looking for Ecommerce is a major part of the home-
innovation in furniture, both when shopping improvement success story. Online sales
online or in-store. Especially popular are of home improvement products hit a 41
power reclining chairs or sofas. This is driving percent annual growth rate, reaching $10.9
up the average sale price quite significantly. billion in sales. According to the NPD Group,
When shopping for mattresses, consumers— almost every online category within home
especially millennials—seek sleep-tracking improvement saw double-digit increases.
technologies. Being unique, and buying The largest growth areas? Plumbing pipes
furniture that others don’t have, is also trending. and fittings, light bulbs, and ceiling fans.
Consumers’ technology expectations are also
changing the way they shop online. Retailers An industry ready for growth—and
like Jerome’s Furniture are embedding fraudsters
augmented reality features in their shopping
apps that let customers get a 3-D view of what The appliance, furniture, and home
a piece of furniture will look like in their homes improvement industry is getting a boost from
or offices. ecommerce. In all categories, online sales
growth surpasses growth in brick-and-mortar
The technology, which Jerome’s calls “See It stores.
in Your Home,” works on two levels. First, it
allows online shoppers to get a sense of the But there are challenges. The products
look and feel of a product without having to in these categories are often ones that
make a trip to the store. In that sense, it drives consumers hesitate to buy site unseen. So,
online sales. both pure-play online retailers and traditional
brick-and-mortar retailers are moving
And for those shoppers who still want to sit into each other’s territory to build true
on a couch before they buy it, the 3-D view multichannel options for customers.
provides that extra layer of information that
might be the difference between getting the In fact, like all of ecommerce, the line
shopper into the store or having that shopper between in-store and online are blurring to
go somewhere else. the point of oblivion. The other challengeMerchants in the home improvement market segment have a
specific opportunity to make better, faster and more cost-effective
decisions about fraud to increase their efficiency at minimizing
fraudulent transactions, and to improve their capabilities for
maximizing legitimate transactions
– Aberdeen — Total Cost of Ecommerce Fraud: Home Improvement
for the sector, of course, is that increased For a deeper dive into the fraud
ecommerce attracts fraudsters. This is where statistics for the home goods
new models of fraud protection, models that
provide financial guarantees for approved
industry, download Signifyd’s
orders, come in. Ecommerce Fraud Index.
By using machine learning and human
intelligence, guaranteed fraud protection
models deploy smart machines to sift through
orders separating the legitimate from the
fraudulent or questionable.
Such assurance allows online appliance,
furniture and home improvement retailers
to seize the sizeable opportunity in front of
them. Consumers are ready to buy, more of
their purchases are moving online and new
markets are opening internationally.
Retailers should be focused on those strong
tailwinds rather than on worries about
potential fraud losses — or losses from failing
to ship legitimate orders for fear of fraud.
By turning to cutting edge fraud management,
appliance, furniture and home improvement
merchants are free to realize the full potential
of their lucrative market.
H O ME GOOD S 11You can also read
