By Oksana Balytsky, Product Marketing Director at Forter
Beauty and cosmetics is one of the fastest-growing industries. The sector went from being worth $483 billion in 2020 to $511 billion in 2021, and is expected to exceed $716 billion by 2025.
One of the most significant contributing factors to the growth was the wave of new shoppers that were ushered online during the pandemic. During the first fiscal quarter in 2020, almost 30% of the beauty market completely shut down and while traditional brick-and-mortar drug stores that supplied cosmetics experienced a decline in sales, it forced retailers to fully embrace digital transformation and enhance the online shopping experience.
Although the e-commerce explosion boosted beauty brands’ sales, it also brought some added risks. Recent research showed that fraudulent online transactions in the beauty and cosmetics space were up 65%. There are three key trends that are contributing to the rise in fraud and decline in the customer experience for beauty and cosmetic retailers:
Trend #1: Omnichannel Experiences
The intersection of brick-and-mortar stores and online shopping has created the need for retailers to provide a consistent, coordinated shopping experience across all channels. Known as the “omnichannel” experience, it includes options for shoppers such as:
- Buy online, pick up in-store (BOPIS)
- Buy online and pick up curbside
- Buy online, return in store (BORIS)
Sixty percent of millennials and 58% of Gen Z shoppers have increased their use of BOPIS specifically for beauty products, according to a recent PowerReviews survey.
How The Omnichannel Experience Increases Fraud
Shoppers are not the only ones finding the convenience of these omnichannel services. These options greatly expand the surface area scammers have to exploit. Forter research showed that there has been a 55% increase in BOPIS fraud since 2020. Fraudsters know that retailers have to provide fast and seamless omnichannel options to attract customers, and are using legacy-based fraud prevention solutions to protect themselves. Unfortunately, these traditional systems don’t cover the entire shopping journey across omnichannel touchpoints.
Trend #2: The Influx of New Online Shoppers
There was a 43% or $244.2 billion increase in e-commerce sales in 2020 compared to the previous year, and behind those dollars were millions of new online users. According to the same PowerReviews study referenced above, a little over 50% of consumers now purchase more of their beauty products online than before the onset of the pandemic.
Brands have to cater to these online newcomers, but many beauty brands have no information about their preferences or shopping habits. This lack of understanding leads to new users experiencing higher rates of payment declines compared to regular online shoppers. First impressions are everything and denial of service of any kind can sour the business-consumer relationship indefinitely.
More customers mean more account takeovers.
Many new users moved online out of necessity, and many are less experienced with protecting their identity and online accounts. Weak passwords and the lack of understanding of two-factor authentication (2FA) make them more vulnerable to account takeover attacks (ATO). A study published in 2021 found that over 20 million households have been victims of an account takeover.
Since the migration of shoppers to the digital world, ATOs have increased by 55%. These numbers are expected to climb in the future as new users are continuously joining and fraudsters work to exploit and steal login information.
Trend #3: Creative Policy Abuse
As more shoppers take advantage of the integrated shopping experience, they will grow to favor brands that offer convenient experiences and affordable prices. Cosmetics and beauty shoppers are savvy buyers and seek out retailers that offer shopping incentives like loyalty programs, sales, promotions and faster shipping.
About 76% percent of shoppers responded that they would pay extra for quality reward programs, and 40% of respondents said they anticipate immediate benefits once registering.
More promotions mean more policy abuse
Based on Forter’s research in conjunction with PYMNTS, policy abuse cost U.S. retailers more than $100 million and as much as $89 billion per year.
Customer policy abuse is here to stay and will become more creative as omnichannel services/options are added. Types of policy abuse beauty brands can expect to encounter include returns abuse, reward program abuse and promo abuse.
How Beauty and Cosmetics Brands Can Protect Themselves
There are many factors for beauty and cosmetics brands to consider when it comes to addressing these fraud trends. A good starting point is to incorporate a fraud prevention service with real-time fraud detection capabilities to process orders as quickly as possible with minimal disruption to customers’ shopping experience. A platform with large customer profile repositories is essential to cross-reference new customers and welcome them with no issue. And ultimately, it protects businesses against fraud without compromising the quality of the customer journey.