Lax E-marketplace Rules Stoke Crime, Congress Must Act – WWD

Stores have been facing another epidemic spreading alongside COVID-19, as waves of audacious smash-and-grabs and other heists continue to rattle the retail world.

Large companies are accustomed to factoring in thefts and other losses. But increasingly brazen crime sprees across the country are sending shockwaves through the sector — and fueling a new effort to clamp down on a major sales destination for illicit goods: online marketplaces.

This week, the chief executive officers of 20 leading retailers, including Target, Levi Strauss & Co., Nordstrom Inc., Neiman Marcus Group, Ulta Beauty and VF Corp. co-signed a letter urging Congress to pass the Inform Consumers Act, a bipartisan bill aimed at tightening up how marketplaces like Amazon vet third-party sellers.

Brian Dodge, president of the Retail Industry Leaders Association, the group that spearheaded the letter, explained in a statement that “criminals will continue these brazen thefts as long as they are able to anonymously sell their stolen goods via online marketplaces.” 

The letter, addressed to Congressional leaders Rep. Nancy Pelosi, Rep. Kevin McCarthy, Sen. Chuck Schumer and Sen. Mitch McConnell, casts the act as a straightforward online security measure. It would require online sales platforms to verify sellers’ government ID, tax ID, bank accounts and contact information. High-volume sellers would be mandated to give consumers their contact information. 

The letter argues that the Inform Act would “increase transparency online for all marketplaces, making it easier for consumers to identify exactly who they are buying from, and make it harder for criminal elements to hide behind fake screen names and false business information to fence illicit products while evading law enforcement.” 

The companies didn’t single out Amazon or any other specific companies, but blamed “certain” online marketplaces for failing to ensure the integrity of their platforms. They argue that, despite retailers’ best security efforts, criminals will continue “capitalizing on the anonymity of the internet and the failure of certain marketplaces to verify their sellers,” unless Congress takes action. 

Shoplifting has always been a problem for retail, which saw store thefts skyrocket above $68 billion in 2019. But the recent surge has been especially gobsmacking for retailers.

The scourge of organized retail crime cost businesses an average of more than $700,000 in losses per $1 billion in sales, according to a 2020 survey by the National Retail Federation. The organization added that “societal changes and a shift to digital from the pandemic have led to an increase in the problem,” adding that its latest National Retail Security Survey found that 57 percent clocked a rise in organized retail crime.

In the Bay Area, smash-and-grab thefts over the holiday season even made some shoppers nervous about going out. Luxury retailers such Louis Vuitton and other Union Square stores saw incidents surge this year, and it’s not limited to the city of San Francisco. One November Saturday in Walnut Creek saw dozens of looters rush a local Nordstrom and make off with $100,000 to $200,000 worth of merchandise.

The crime wave has numerous groups lining up in support of the bill. The Buy Safe America Coalition — which includes some of the letter’s co-signers, such as Levi Strauss & Co. and Ulta Beauty, among others like Gap Inc. and J.C. Penney Co. Inc. — along with groups like American Apparel & Footwear Association, Footwear Distributors and Retailers of America and the Fashion Jewelry and Accessories Trade Association called the act a “common sense” approach.

But the situation is not that clear-cut, and the nuances matter. Because for critics, the Inform Act is less about stopping crime, and more about protecting physical retail from online competition and indie sellers. 

“It’s like the wild, wild west,” Marshal Cohen, retail expert and chief industry adviser of The NPD Group, told WWD. “It’s a free-for-all, if anybody goes and gets [product], and can redistribute in any way they want. So it’s basically taking the control from the brand that used to control its destiny in partnership with retail, to now, when basically anybody can control and do detrimental harm to brands.

“So why would you want to relinquish what you’ve worked so hard to control over your historical endeavor?” he posited. “What’s now happening is, we’ve got the consumer who’s looking at things and saying, ‘Well, where’s the integrity of the brand?’ and retailers have lost control. So they need some regulatory activity to be able to help maintain the integrity of these brands.” 

But resale and peer-to-peer platforms see the bill as an existential threat. Citing privacy concerns for individuals and the potential impact on the secondhand sales business, eBay, Etsy, Mercari, OfferUp and Poshmark founded the Coalition to Protect America’s Small Sellers in March. Others have been lining up to criticize the measure as well. 

“The true mission of the Inform Act is to eliminate big-box retail’s competition by hurting small sellers,” the Makers and Merchants Coalition said in a statement to the press. 

“The [Inform] Act does nothing to stop stolen goods at their main source, brick-and-mortar retail stores, but does threaten to compromise the safety and personal information of small online sellers who use larger marketplaces to sell their products.” In other words, this particular bill doesn’t help physical retailers directly to address robberies where they happen. Instead, the proposal targets the destination of illicit goods and threatens to turn small sellers into collateral damage, without solving the root problem. 

It’s also not clear how the rules would impact tech platforms and their social commerce efforts. Fake user profiles run rampant in social media, while apps like Facebook, Instagram, TikTok, Snapchat and more race to broaden their shopping chops and turn creators into merchants. If Congress considers them online marketplaces as well, the crackdown would presumably apply to them, too. 

As for established retailers, it’s notable that Target Corp., the only company on the list that operates a marketplace with third-party sellers, is a co-signer. That may be because its Target Plus offering is an invitation-only affair that evaluates each merchant before granting access to its sales platform. So presumably, it already does the vetting demanded by the bill. However, since it doesn’t disclose its criteria for acceptance, its policy remains opaque. That seems contrary to the spirit of transparency touted by this week’s letter. 

Target declined a WWD request for comment on the letter, as did Nordstrom and Levi’s. Neiman Marcus, Ulta Beauty and VF Corp. didn’t immediately respond to requests. 

While Walmart didn’t appear in this correspondence, it has publicly supported the bill. So does Amazon, which marks an about-face for the company. The e-commerce juggernaut invested $700 million in security last year to guard against counterfeits and stolen goods, including live video and address verification — even as brands continued to claim that the sale of illicit goods remain a major problem at the company.

Amazon was an early critic of the bill, but now it wants to play an active role in shaping the legislation. The stakes are sky-high. In the third quarter, the company saw net sales through third-party sellers grow nearly 18 percent year-over-year, hitting $24 billion. 

In essence, the Inform Act has carved a dividing line, or perhaps a battle line, with retail’s top companies taking sides. And because it is set against the scene of rampant criminality recently, there’s a whole new urgency driving the matter. 

But even if blocking criminal activity was the only motivation, NPD Group’s Cohen warns that the Inform Act still isn’t a cure-all. He likened online security to a game of whack-a-mole.

“Somebody is going to figure out how to do it…it’s putting a Band-Aid on a bigger leak than we’re going to be able to solve with one bill and one attempt,” he said. Whether the bill passes or fails, “you’re going to see some kind of action, just because it’s becoming too big of an issue. It’s not going to go away on its own.”