Mind the gap – managing loss prevention
By Alan Morris, Managing Director of Retail Assist
No retailer can render itself immune from theft, fraud, shrinkage and loss. It’s a chilling reality, and one that is being addressed by massive investments in security, process and technology.
But, whilst each can contribute to an overall solution, retailers often focus on them in isolation, at the same time discarding critical data that could highlight the source of loss and prevent its reoccurrence.
To remain competitive, even the most successful retailer must constantly strive to minimise costs, streamline process and maximise margins. Yet, at the same time as attention is focused onabove the line- efficiencies and profitability, a significant proportion of sales turnover, estimated in the UK to be between 1.4% and 1.6%, is lostbelow the line- to shrinkage in all its forms.
A retailer turning over £200m with profits of £10m, but with 3% shrinkage, would see those profits rise to £13m if they hit the UK’s average shrinkage level: a creditable 30% increase in profits.
As commercial pressures translate into leaner margins, price increases to offset losses are not a practical remedy. Shrinkage has to be tackled head on, but where should retailers direct their efforts?
Greatest success comes from a multi-faceted strategy which, addressing the diverse and complex nature of the problem, combines tactics directed at staff, procedures, equipment and IT. And, of course, the starting point has to be an analysis of the problem in all its manifestations, as this will differ by sector, by channel and by retailer.
Contrary to popular perception, not all shrinkage is down to customer theft. According to recent US research, staff theft, which is more insidious and harder to spot than customer theft, accounts for over 45% of loss.
Procedural errors and poor systems are believed to contribute a further 12%, with supplier errors amounting to 8%. Not surprisingly, whilst improved security measures such as Chip & PIN and RFID are reducing store-based loss, growing online sales have created a new hunting ground for those of a fraudulent nature.
Remedies are needed in each of the following areas and, most importantly, must bejoined up- to gain maximum benefit.
Security & Culture
Retailers are investing more and more in physical security measures, from visible deterrents such as security staff, cameras and alarms, to RFID and source tagging devices on higher value items. Frequently, success is diluted by an indifferent, if not corrupt, staff culture.
This manifests itself in little attention paid to security measures, through to active theft, often perpetrated through refund abuse. A less forgiving culture, greater staff involvement and more rigorous training all have their part to play in reducing loss.
Retailers that take time to map their processes invariably find many are cumbersome, redundant and prone to abuse. There’s much to be gained from tighter policies for refunds and stock management but, even then, a failure to integrate core processes allows shrinkage to pass unnoticed.
Only when all phases of the retail lifecycle are integrated, from buying and…