Security & Fraud

Power Tool Pirates: How Fraudsters Are Targeting Their Favorite Industries

furniture

Fraud is rampant in the furniture, appliance and home improvement industries. The average mid-range chargeback for purchases between $100 and $500 is up from $288 to $336. In this episode of the Global Fraud Index podcast with Karen Webster, Sourabh Kothari, director of merchant advocacy at Signifyd, explains how fraudsters are leveraging vulnerabilities in these spaces — and why eCommerce growth can be a mixed blessing.

Dude, where’s my couch?

It could have been the title of a wacky, turn-of-the-millennium comedy featuring heroes who go on an adventure to track down millions of dollars’ worth of missing furniture. Except that it really happened.

The real-life star was a female private eye hired by an anonymous furniture manufacturer to put a stop to the systematic theft that had been plaguing the company for years.

The villains? Not some guy in a basement somewhere, that’s for sure. This was done by a sophisticated fraud ring capable of not only feigning payments for the furniture, but also of transporting, storing and reselling thousands of couches, armchairs, tables and other large items that should have been difficult to hide — and all without attracting any notice.

Our heroine posed as a buyer for a company that was moving offices and went on the hunt for a good deal on a large quantity of furniture. And she found one.

On her way to check out the goods, the private eye passed several warehouses before arriving at the correct one. There she discovered the motherlode: thousands and thousands of pieces of stolen furniture that the fraudsters were selling slowly over time. After all, furniture doesn’t expire. Selling quickly would have attracted attention, so why rush?

Before leaving, the private eye did some snooping around the other warehouses and found them to be full of even more stolen furniture — that is, before the bad guys caught her and chased her off. Still, she had seen enough. She called it in, and the goods were recovered.

Furniture is not easy to steal, move or resell, according to Sourabh Kothari, director of merchant advocacy at Signifyd. What this story and others like it reveal is that the enterprise is becoming more sophisticated.

In the most recent episode of the Global Fraud Index podcast series with PYMNTS’ Karen Webster, Kothari explained how eCommerce growth in the furniture, appliance and home improvement industries has left companies vulnerable and why many of them are hampering themselves with marketing and innovation strategies. He also covered the importance of getting things right as these industries continue to see tremendous online growth.

Brick And Mortar Vs. eCommerce

Furniture is one of the last strongholds of traditional brick-and-mortar behavior. In fact, Kothari said, approximately 70 percent of furniture retailers are not selling online. Consumers are researching furniture purchases online, though, and may be interested in buying through the channel if the avenue gets them the best deal.

Interest can only grow as new technology like augmented reality (AR) creates innovative ways for customers to see how furniture would look in their homes before committing to purchases, Kothari explained. These factors make furniture a promising sector for eCommerce growth over the next five years.

Very promising indeed, if appliances are any indicator. He noted Americans purchased more than $4 billion in appliances online last year, up 40 percent from the year before.

Asia showed even more significant growth in the sector. Vietnam saw the most globally, as retailers with an online presence offered discounts for eCommerce sales to get around the hassle and expense of restocking local stores — and Indian furniture retailers are taking a similar approach. China, too, saw 37 percent growth in online furniture sales in 2017.

Today, it seems almost obvious to buy large appliances like washers and dryers online and save oneself the trouble of having to transport these heavy purchases from the store to one’s home, and from the street to the laundry room, Webster chimed in. Even for smaller appliances like toasters, ordering one online is often the modern consumer’s first impulse.

Kothari said it’s a good time for appliances because there was a big boom in sales between 2004 and 2006, so many of those products are now ready to be replaced. When the washing machine breaks, where will customers turn first? For many, the answer is Google, or maybe they’ll ask Alexa. They probably won’t go running to the department store to peruse in-store.

In the home improvement realm, many customers are choosing the hybrid approach of click and collect. They do their research and make the purchase online, then go pick up the items at the nearest brick-and-mortar location.

Kothari said millennials are leading the click and collect charge — it’s just not their style to roam the aisles. But the trend is by no means exclusive to the younger generation, with Gen X and baby boomer shoppers also clicking and collecting. As with any other industry experiencing growth in online commerce, though, home improvement is also seeing growth in online fraud.

Where Fraudsters See Opportunity

Fraudsters are targeting the furniture and home improvement spaces the same way they are targeting jewelry and apparel: by going after items in the $100 to $500 range — a range that is harder for merchants to identify as fraudulent because the lower price tag doesn’t trigger any red flags.

Criminals are primarily paying for furniture with stolen financials, said Kothari, though account takeover is certainly on the rise, as it is across the board.

The fraudsters successfully enter the credit card information and match the billing address. Then, after the order has been placed, they’ll call in with some type of story — “The house is being fumigated,” for example — and ask to have the item delivered elsewhere. That is most likely a drop site, said Kothari.

In home improvement, power tools are a favorite target.

Many tools land squarely in that $100 to $500 price bracket and, on top of that, Kothari explained that people who love power tools are always buying more. That can make it difficult to tell if an account has been taken over or if the purchases are being made by a tool enthusiast picking up the latest and greatest.

Then there are appliances: a large and diverse category by any account, Kothari noted.

Consider a product like the ChiliPad, which goes on top of a mattress to help regulate body temperature during sleep. The ChiliPad — an invention that is marketed as a product to provide therapy, reduce pain and improve lives — was developed scientifically and reviewed by many physicians. It also falls in the appliance category alongside toasters and dishwashers.

The real issue for products like the ChiliPad is not how they’re categorized, however. It’s how they’re marketed, and the fact that they exist at all, two things that really can’t be helped. ChiliPad and other unique products like it will find an audience anywhere they’re sold, and that draws fraudsters like a magnet.

Kothari said any good brand will innovate without waiting for customers to demand it — that is how it retains a leading position. Any brand that has innovated will then market the innovation, targeting customers with Google ads and other techniques to drive demand.

If a fraudster can have a ChiliPad on hand in his fake eBay or Amazon store at the moment when a customer is browsing for the best deal, then the brand has already done all the work for the fraudster to succeed in reselling a stolen appliance at near-full price.

Conclusion

Fraud is rampant in the furniture, appliance and home improvement industries. The average mid-range chargeback for purchases between $100 and $500 is up from $288 to $336.

But simply ramping up defenses to keep out the bad guys will likely keep out some good guys, too. There are many legitimate transactions that don’t always look good, and a lot of fraudulent ones that check all the right boxes.

Consider a customer ordering specialized power tools to be sent to his job site. The shipping address will not match the billing address, and will likely change often. Furthermore, there may not be a house or any kind of completed structure at the designated address. Because those orders look a little fishy, merchants may be tempted to turn them down.

Kothari said it’s just as important to enable legitimate sales as it is to disable illegitimate ones, and that’s where Signifyd comes in. The company aims to offer merchants total immunity by making the call on whether a transaction can be trusted, and if it’s wrong, Signifyd — not the merchant — takes the hit.

“These merchants are feeling frustration over turning down good orders because they don’t look good online,” Kothari said. “Now, they can sell the high-end power tools they’re known for with confidence.”

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