22.12.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Free Shipping, Lenient Return Policies, Rampant Returns; UPS Expects 15% Jump in Returns; Reflections on Retailer Wages

Posted: 22 Dec 2013 07:49 PM PST

It's no secret that online shopping is soaring. From a customer standpoint, what's not to like about the shop-at-home, no gasoline, no sales tax, low-price-guarantee, and lenient return policy model of online retailers?

For those who know what they want, as well as those willing to wait a couple days to get it once they find it, the answer is nothing.

And as sales (or alleged sales) increase, so do returns. This has sellers sending emails that suggest clothing sizes based on return history, hoping to break return habits.

UPS Expects 15% Jump in Returns

Please consider Rampant Returns Plague E-Retailers
Behind the uptick in e-commerce is a little known secret: As much as a third of all Internet sales gets returned, according to retail consultancy Kurt Salmon. And the tide of goods flowing back to retailers is rising. Shipper United Parcel Service Inc. UPS +0.15% expects returns to jump 15% this season from last year, making them a significant and growing cost for retailers.

The stakes get even higher during the holidays, when return volume peaks. So this year, chains are digging through past transactions to weed out chronic returners, train shoppers to make better decisions or stem buyer's remorse.

Fashion discounter Rue La La, owned by Kynetic LLC, is testing a program that gives customers access to their own purchasing history, and also access to sizing data across its customer base, to help them make better purchases the first time around.

For instance, a customer who has continuously bought the same brand of dress shirts in both a small and a medium might see a note pop up saying: "Are you sure you want to order the small? The last five times you ordered both sizes, you only kept the medium," Chief Executive Steve Davis said.

The biggest cause of returns is size. To help shoppers choose better sizes, Macy's Inc. and Nordstrom Inc. JWN +1.58% are working with analytics startups such as True Fit Corp. that crunch data to show customers how clothes and shoes will fit them in real life. The companies match up garment specifications and other data from retailers with information provided by shoppers about their favorite clothing items, to generate sizing and fit recommendations.

Retailers are zeroing in on high-frequency returners like Paula Cuneo, a 54-year-old teacher in Ashland, Mass., who recently ordered 10 pairs of corduroy pants in varying sizes and colors on Gap Inc. GPS +0.73% 's website, only to return seven of them. Ms. Cuneo is shopping online for Christmas gifts this year, ordering coats and shoes in a range of sizes and colors. She will let her four children choose the items they want—and return the rest.
Reflections on Wages

That stores can take a huge jump in returns and still make a profit says a lot about the viability and cost pressures on the store-front model with greeters, retail clerks, sales associates and floor assistance.

It also says a lot about why wages are where they are.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Christmas Sales Decline at Target in Wake of 40 Million "Compromised Credit" Cards; Stolen Cards for Sale on Black Market

Posted: 22 Dec 2013 04:13 PM PST

The final weekend of Christmas sales is the worst possible time to have a security breach, but that's what happened at Target. Sales are down at least three percent following a security breach in which hackers stole millions of credit cards.

Let's back up a bit and review what happened.

40 Million Credit, Debit Cards Compromised

On December 19, Target disclosed that hackers gained access to as many as 40 million credit and debit cards used by customers of Target during the height of the holiday shopping season, in one of the biggest data breaches in history.

The Washington Post has details in Target says 40 million credit, debit cards may have been compromised
Company officials offered few details on the intrusion, which reportedly began the day before Thanksgiving and lasted until Sunday this week. Security experts said that the kind of information stolen – including names, card numbers, expiration dates and three-digit security codes – could allow criminals to make fraudulent purchases almost anywhere in the world.

The breach highlighted vulnerabilities in the massive, interconnected shopping systems used for billions of dollars of retail transactions every day. Customers at Target's nearly 1,800 stores in the United States were potentially affected, though those who shopped online were not, the company said.

"Whatever money Target thought they were going to get during the holiday season just got flushed down the data-breach toilet," said John Kindervag, an analyst and data security expert at Forrester, a research firm. He estimated that Target will have to spend at least $100 million to cover legal costs and to fix whatever went wrong.

Kindervag said the company will owe money to card brands, like Visa and American Express, that have to reimburse customers for fraudulent transactions. Target, based in Minneapolis and one of the nation's largest retailers, also faces the risk of enduring damage to its reputation, according to analysts and consumer advocates.

The number of serious data breaches appears to be rising. This month, JPMorgan Chase disclosed that 465,000 of its card users' data had been stolen after an attack on its the Web site for its prepaid card.
Stolen Cards for Sale on Black Market

Fox News reports Debit and credit cards stolen in Target breach reportedly for sale in underground black markets
Credit and debit card accounts stolen during a security breach involving retailer Target have reportedly flooded underground black markets, going on sale in batches of one million cards.

The cards are being sold from around $20 to more than $100 each, KrebsOnSecurity reports.

The security news site said it spoke to a fraud analyst at a major bank who said his team was able to buy a portion of the bank's accounts from an online store advertised in cybercrime forums as a place where thieves can buy stolen cards.

The Target data theft is the second-largest credit card breach in U.S. history, exceeded only by a scam that began in 2005 involving retailer TJX Cos. That incident affected at least 45.7 million card users.

On Friday, Target reiterated that the stolen data included customer names, credit and debit card numbers, card expiration dates and the embedded code on the magnetic strip found on the backs of cards, Target said.

Angry Target customers expressed their displeasure in comments on the company's Facebook page. Some even threatened to stop shopping at the store.

Target hasn't disclosed exactly how the breach occurred but said it has fixed the problem.
Traffic at Target Stores Down 3-4%

In the wake of the data breach, Traffic at Target Stores Down 3-4%
The number of transactions at Target slipped 3% to 4% compared with the final weekend before Christmas last year, estimates retail consultancy Customer Growth Partners LLC.

By contrast, transactions at other retailers were strong.

A spokeswoman for Target declined to comment specifically on this weekend's results, saying the retailer reports sales on a quarterly basis. Target tried to limit the damage by offering a 10% discount to all customers in its U.S. stores over the weekend, and analysts said that effort helped.

"This is the worst possible time something like this could happen," said Craig Johnson, president of Customer Growth Partners. His firm estimates that U.S. retail sales on Saturday totaled $17 billion, exceeding those on Black Friday by $2 billion.

The breach began Nov. 27 and wasn't halted until Dec. 15.

J.P. Morgan Chase & Co. slapped daily spending limits on debit-cards that had been used at Target stores during the period in question. Citigroup Inc., meanwhile, in some cases may lower limits, block transactions and reissue cards for debit-card holders if it sees suspicious activity, a person familiar with the matter said Sunday.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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