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Why Selling Sneakers Online Is a Risky Business

With the footwear and apparel industries facing slowing overall demand, many fashion firms have embraced the booming sneaker business as one of the safest bets for financial security.

And while athletic continues to revel in its moment as fashion’s “it” category, the popularity of derivative styles and the flourishing resale market may now come at a cost for many sneaker retailers, according to a new study by fraud-prevention company Riskified.

The report — which analyzed fraud in online sneaker sales — found that, on average, an online sneaker order is three times more likely to be fraudulent than a purchase of any other kind of fashion item. In other words, sneakers carry three times the risk for sellers over any other fashion purchase.

A robust resale market and high collectible appeal make sneakers a favorite target of fraudsters,” the researchers explained. “Additionally, the increased growth of cross-border e-commerce has led to strain on fraud teams, as international orders are particularly challenging to process.”

Riskified said it works with some of the world’s leading footwear merchants and processed millions of transactions related specifically to sneakers in order to determine how prevalent bogus sneaker purchasing has become in the online realm.

What it found was that fraudsters using fake or stolen credit cards or engaging in faulty chargeback claims were disproportionately targeting online sneaker websites — likely in an attempt to tap into the lucrative sneaker resale market or to snap up hot kicks without spending their own loot. (Chargebacks are a demand by a credit-card provider for a retailer to refund the loss on a fraudulent or disputed transaction and often includes additional charges to the retailer.)

The unusually large share of teen and millennial shoppers has only compounded the problems, the researchers said.

According to Riskified’s data, at least 15 percent of sneaker chargebacks are friendly fraud, a type of fraud often associated with younger shoppers,” the team wrote. (Friendly fraud happens when a customer fraudulently reports a charge on their credit card to their bank, claiming that the charge isn’t legitimate. The customer is often refunded the money, and the merchant is responsible for the cash.)

Despite the high level of fraud, Riskified says businesses selling sneakers online should know that the majority of orders are valid. Further, the experts warn that overzealous automated fraud-prevention systems tend to broadly decline sneaker orders, which can discourage legitimate buyers from continuing to shop with a particular e-tailer.

On average, sneaker retailers can safely approve at least 80 percent of online orders,” the researchers wrote. “Approval rates significantly below 80 percent likely indicate that good customers are being turned away.”

Riskified said retailers should try not to overreact to traditional fraud signals but take steps to determine where fraud is happening in their particular business.

“Online fraudsters tend to target items based on price, so more expensive products usually carry a greater risk of fraud,” the report said. “But in the world of sneakers, price isn’t the key to fraudster preferences. A trendy pair of sneakers will be easier to resell on a secondary market to make a quick buck.”

For example, Riskified says running shoes tend to be much safer than basketball shoes, and trendy items such as Nike’s Kyrie line and Adidas’ Stan Smith are more likely to be bought fraudulently than other, more practical styles.

The researchers also noted that the number of sneakers included within the online order is correlated with fraud rates: “An order with six or more items is more than 3.5 times as risky as an order for a single pair of sneakers.”

And men’s sneakers carry a 55 percent higher rate of fraud than orders for women’s sneakers, and boys’ sneaker orders are 8 percent more likely to be fraudulent than girls, according to the report.

This can likely be attributed to the much larger resale market for men’s sneakers,” said the report. “If a fraudster’s intent is to resell the shoes, it makes sense to target products for which there’s more consistent demand.”

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