This article was published in the June 2016 issue of STORES Magazine.
Online retail isn’t for wimps — especially when you specialize in shoes.
Businessman Sean Clark, based in Vancouver, B.C., saw an opportunity when his wife complained about needing to cross the border into the United States to pick up shoes from retailers that didn’t deliver in to Canada. He and investor Roger Hardy created SHOEme.ca in 2012 to serve the growing Canadian online footwear market.
Clark sold his interest in the Canadian retailer to Hardy Capital in 2014, and Hardy went on to buy Seattle-based OnlineShoes.com (the first online shoe retailer in the U.S.) and St. Louis-based Shoes.com in 2014. The three companies were consolidated under the Shoes.com brand, although SHOEme.ca and OnlineShoes.com continue to maintain their own websites as sales portals.
With its simple web address Shoes.com should be on top of the market, but it faces stiff competition from Amazon’s Zappos.com and Shoebuy.com, as well as traditional retailers with robust online operations. The company regularly takes a close look at all of its operations, including how the website interfaces with customers, which is where it hit on something big.
Through its owner, the company was introduced to Klarna, a firm that provides a pay-after-delivery service for retail consumers.
“In some ways, this really goes against the grain of what we’ve been taught about retail. The customer pays and then they receive the product,” says Brian Billingsley, CEO of Klarna North America. “With Klarna Checkout, the product is shipped and the consumer pays for it after they try it on and see if they like it.”
The concept was developed in Europe, where besides credit and debit cards there are multiple bank transfer products competing for and confusing consumers as they go to an online checkout page.
“The goal was to create a payment product that was the easiest to use,” Billingsley says, “which makes sense in the era we’re entering.”
Streamlining purchases
Getting consumers to the checkout is less than half the battle. Poorly designed interfaces combined with mobile use equal a large quantity of abandoned baskets.
“When you go to pay for the item you’ve selected, you’ve got all these fields to fill out, then you have to punch in your credit card number on your phone,” Billingsley says. “It’s cumbersome, and many retailers are finding conversion rates flatlining or decreasing when consumers reach that page. It’s much easier to just press a ‘buy’ button and know you’re getting the product.”
The team at Shoes.com was intrigued and began the process of bringing Klarna Checkout to the website last fall. “What sold us is that it streamlined purchasing for our customers,” says Geoff Henshaw, vice president of brand and retail for the company. “They found an easier way to buy our products at no risk to us.”
“The convenience factor is very high, which leads to repeat customers.”
When a consumer clicks on a shoe and moves to the checkout page they’re given a choice of paying with a card or PayPal, and they’re usually given the option of “Pay After Delivery.”
“The nice feature about this is, you get the shoes and can see how they fit and if they work with what you wear, and if they don’t, you’re not having to deal with having a charge on your account then waiting for it to be refunded,” says Henshaw. “The convenience factor is very high, which leads to repeat customers.”
If pay after delivery is chosen, Klarna pays the retailer, the shoes are shipped out and the customer has 14 days to make a payment. The obvious question: What happens when a customer orders a pair of expensive shoes, receives them and just can’t find the time to push the “buy” button or make the call to pay for the shoes, but also can’t be troubled to return them?
There are some gentle reminders about payment that get progressively more urgent, but Klarna counts on stopping fraudsters before they get their hands on the product.
“There’s some work in the background that goes on to prevent fraud,” Billingsley says. “We have models and algorithms that watch very closely. Our partner merchants also share past purchasing data with us so we know who’s buying. We know if the address has been associated with any past problems and if there have been excessive returns or fraud associated with it.”
Using the IP address, the Klarna system can instantly determine if the purchaser is using a “spoofed” IP location to stay hidden — often a sign of potential fraud.
Using the IP address, the Klarna system can instantly determine if the purchaser is using a “spoofed” IP location to stay hidden — often a sign of potential fraud. “If a person was logging in from Miami and minutes later they’re logging in from San Diego and buying 10 pairs of the same shoe, the system knows that looks funny,” he says.
If the program senses something isn’t right, it asks for a credit card to make the purchase at that moment. “Because we own the checkout experience, we dynamically shift it as needed,” Billingsley says. “Fraud can happen, but we’re confident that our losses are less than what you’d see at a regular credit card issuer.”
‘No catch’
The program also determines what type of purchases can work for pay after delivery. The consumer who orders a pair of socks isn’t likely to be given the Klarna option, since it’s a such a small price point; someone buying four different shoes with a $500 basket is likely to receive the option.
“If he or she has a large amount at checkout, we’ll soon also offer the option of breaking up the transaction into multiple smaller payments to make it an easier buy,” Billingsley says.
Shoes.com began testing the program in early November, making tweaks with Klarna to ensure it blended in well with the company’s interface. “There were some little changes to make it more clear for our customers,” Henshaw says, “then on the back end we had to educate our employees, especially those in our call centers.”
Shoes.com has seen a 59 percent increase in mobile conversions since rolling out the pay-after-delivery program.
Klarna also closely tracks purchaser reaction in an effort to streamline the program. “Our retail partners regularly let us know about any questions or issues consumers have,” Billingsley says. “And because it’s our system, we can track where the mouse flows are on checkout, whether they’re mobile or desktop, to let us know if there’s a particular field where they’re getting hung up.”
Shoes.com rolled out the program the week of Black Friday and the response was better than expected. “We’ve seen a 59 percent increase in our mobile conversions,” Henshaw says. “Since that’s where the industry is headed, we feel that positions us well on mobile platforms.”
It had been thought that Millennials would lead the way among Shoes.com customers in using the program, but internal stats show differently. “It seems to be across the board, men, women, people of all ages are using it and liking it,” Henshaw says. “That’s probably as it should be.”