American retailers are seeing a notable shift in the landscape of theft, with shoplifting cases declining for the first time in several years, while more sophisticated external fraud schemes, particularly phone scams, have surged by 69%. This trend, highlighted by new research from the National Retail Federation (NRF), suggests that investments in store security are yielding results against traditional merchandise theft, even as criminals adapt to exploit digital vulnerabilities.
Shifting Threat Landscape
The NRF research, released last week, attributes the stabilization of in-store theft levels to ‘investments in technology and employee training to strengthen store security and improve response to these crimes,’ according to David Johnston, NRF Vice President for Asset Protection and Retail Operations. However, Johnston cautioned that ‘significant challenges remain as organized criminals continue to exploit vulnerabilities throughout the retail environment as seen in the rise of various fraud schemes and thefts including cargo theft, phone scams and gift card fraud.’ This indicates a strategic pivot by criminals towards less direct methods of appropriation.
Rise of Digital Fraud Schemes
The report details a clear shift from physical shoplifting to ‘more sophisticated’ theft methods. Retailers reported substantial increases across several fraud categories: phone scams jumped by 69%, loyalty fraud rose by 51%, and gift card theft or fraud increased by 42%. These figures underscore a growing reliance on digital and social engineering tactics by perpetrators, moving away from direct merchandise appropriation.
Technology’s Role and AI’s Early Stages
To counter these evolving threats, retailers are adopting various new technologies. While the use of artificial intelligence (AI) is still in its nascent stages for asset protection, the NRF report notes that ‘AI-based ecommerce fraud detection analytics and generative AI tools and large language models used for routine tasks are more adopted by retailers today than other AI-based or AI-capable technologies.’ Research by PYMNTS Intelligence supports this, indicating that adaptive machine learning systems are effectively identifying real-time anomalies, reducing false positives by up to 85% and doubling compromised card detection. Despite nearly three-quarters of merchants expecting AI-driven fraud to grow, only 37% currently utilize generative AI for fraud prevention.
Balancing Prevention with Customer Experience
A significant challenge for merchants is preventing fraud without compromising the customer experience. Additional research by PYMNTS Intelligence reveals that 85% of merchants identify this balance as their primary fraud-related hurdle. Furthermore, while 51% of global eCommerce merchants anticipate fraud-management staffing costs to remain flat or decrease, a substantial 63% plan to increase spending on fraud-prevention technology, signaling a strategic shift towards technological solutions over human resources in this domain.
The retail sector faces a dynamic threat landscape where success in curbing traditional shoplifting is met with an escalation in digital fraud. This necessitates continuous adaptation and strategic investment in advanced technologies, particularly AI, to protect assets while maintaining a seamless experience for legitimate customers. The data suggests a clear path forward involves leveraging technology to outpace the evolving tactics of organized criminals.
