How Reseller Abuse is Harming Retail — and What to Do About it

Digital technologies have spurred the rise of resellers — individuals and organizations that look for opportunities and use bots to purchase goods instantly and at scale. Resellers may purchase discontinued or discounted merchandise, but often target the hottest items that consumers are waiting to purchase. And they’re dominating the fashion, technology, events and travel industries, increasing the threat to retailers.

With time-sensitive sales, such as tickets to concerts or releases of the latest sneaker, resellers’ bots swoop in and buy out merchandise before consumers can finish entering their purchase information into e-commerce forms. Then, customers experience disappointment from not completing the planned purchases at the advertised prices.

So, isn’t this a victimless crime? Retailers get to sell their products quickly and consolidate logistics. And consumers can still find the goods and experiences they want on digital platforms, albeit at inflated prices.

Why Retailers Should Combat Reseller Abuse

Reseller abuse harms brands’ ability to accomplish strategic business goals. While resellers facilitate the flow of commerce, abuse occurs when resellers prevent normal consumer behavior from occurring by using tools that aren’t available to individual shoppers. Here’s what retailers can do to prevent reseller abuse from continuing unabated.

Personalize the experience.

Retailers seek to develop long-term relationships with customers, learning more about their preferences and habits. In an era of e-commerce, that information is continually updated through clicks. With the ability to target marketing, retailers can send personalized offers and cross-sell and upsell their merchandise. A retail study found that 70 percent of retailers that used advanced personalization achieved return on investment of 200 percent or more, and ROI of 300 percent or even 400 percent was achievable with a true multichannel strategy.

When a reseller enters the equation, they often do more than siphon-off transactions. Resellers gain access to a valuable treasure trove of customer data, such as contact information, preferences, purchase history, and willingness to pay above-market prices. They can then market to these buyers, potentially disintermediating brands entirely.

Innovate business models.

Retailers are experimenting with direct-to-consumer (D-to-C) business models to gain subscription revenues and keep consumers from going elsewhere. D-to-C sales represent only 2.5 percent of total retail sales, reaching $151.2 billion in 2022. However, they’re growing at a healthy clip of 16.9 percent. D-to-C businesses can serve as a living laboratory for learning about customers in real time: seeing how individuals behave on websites and which offers, products and services gain the greatest traction. D-to-C businesses create a new source of revenue and can reduce operational costs, such as the need for high-end product packaging, merchandising, and end-of-season sales. They also protect retailers against unfavorable actions by marketplaces and resellers, such as the development of competing private-label goods and fire-sale pricing.

When resellers merchandise a brand’s products, they become the de facto D-to-C business. They use brands for product design, manufacturing and fulfillment, while capturing profitable fees for servicing customers. Alternatively, they can use consumer insights to develop products of their own, much like Amazon.com has done across multiple sectors. Thus, there’s a lot to lose by letting abusive resellers step into customer relationships.

Monetize omnichannel investments.

Most brands have physical storefronts, which they use to merchandise goods, learn about consumers, and integrate into their channel strategies. During the pandemic, new services such as ROPIS/BOPIS/BORIS (reserve or buy online, pick up in-store; or buy online, return in-store) have taken off. These services offer consumers convenience, while they provide brands a new way to interact with customers. ROPIS/BOPIS gives brands a chance to sell more goods and avoid unwanted returns in stores, while BORIS speeds returns and reduces these costs. Similarly, brands can use stores in different ways. For example, they can target-market consumers in stores via their smartphones, providing special offers tied to their past buying histories and provide interactive shopping experiences that delight.

When resellers disintermediate consumer relationships, brands aren’t able to monetize the costly investments of providing physical storefronts and integrating channels. That can lead to lower profitability or store and brand failures, which harm consumers by providing them with less choice. This can create a vicious spiral of skyrocketing prices across a market. For example, look at the impact of the pandemic. Brands closed storefronts, rationalized product lines, and raised prices due to stay-at-home consumers, fluctuating demand, and supply chain issues.

There’s a Better Way to Serve Consumers

If retailers are concerned about reseller abuse, they’re right to be. The National Retail Federation (NRF) projects that the retail industry will grow 6 percent to 8 percent in 2022, reaching $4.86 trillion in sales. If resellers scoop off just 20 percent or 30 percent of sales, that could significantly harm brands’ long-term strategies and customer relationships.

Fortunately, there’s an easy way to combat fraudulent transactions and protect goods for individual consumer purchases: using artificial intelligence (AI)-based fraud detection tools.

Retailers can beat abusive resellers at their own game by using AI and machine learning to authenticate consumer identities during payment. As a result, these tools can detect the tell-tale signs of fraudulent transactions in real time, such as using multiple email accounts and slightly modified shipping addresses. These transactions are then canceled, enabling legitimate consumers to have a chance to buy the goods instead.

AI-based fraud detection tools also help address other important issues, such as removing friction during the buying process, reducing returns and promotion abuses, and more. They provide a centralized, standardized way to enforce key business policies that enable retailers to grow and operate effectively.

Conclusion

Developing deep, long-lasting relationships with consumers is too important a goal for retailers to let slip away. By identifying and blocking abusive resellers, retailers can protect and grow healthy customer relationships, driving revenues and profitability that lasts.

Oksana Balytsky is the director of product marketing at Forter, a provider of fraud prevention and protection with real-time automated decisions for all transactions.