- 10 Aug 2006
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 merchandising, through stock control to replenishment and forecasting, can a business hope to pinpoint the areas where profits are flowing out.
Technology has a key role to play in loss prevention. The right applications can identify and control cashier theft and errors, delivery supplier fraud, customer theft and perishable shrinkage.
Using today’s PoS systems combined with rules-based applications, it’s possible to record transaction history and pinpoint anomalies, thereby identifying the causes of lost sales opportunities and lapses in inventory management. Alerts can also be set up to flag exceptional events and allow immediate investigation. The immediacy of response and investigation is a powerful driver of behaviour in store.
Even when technology is actively used, adequate integration between front-office and back-office applications is rare. This lack can result in valuable data both falling between the cracks or being actively discarded. An example would be the vast quantity of data produced by till systems, that is stripped out before critical elements are fed into merchandising systems.
Whilst technology alone cannot solve the problem, it should be the linchpin of a strategy that combines security measures, business culture and process flow. When all these elements are aligned, a retailer can not only to record when and where loss is occurring, but what can be done to prevent its reoccurrence.
Shrinkage has been described as the last free money on the table. Retailers realise that it is one of the few external elements within their sphere of influence and only they can put their house in order. Left to grow unfettered, shrinkage is a huge impediment to growth. If confronted head-on with complementary, integrated solutions, it can be an opportunity to significantly increase profit.