In this latest Thought Leader Insight from SWL, we examine the wider context of fellow retail experts’ views on the hugely problematic issue of Loss Prevention and shrinkage. We present our ‘Roadmap to Zero’ programme as a significant and powerful solution to these perennial problems.
Loss Prevention – the global context
In recent years, the Retail industry has been losing a significant part of their bottom line to Internal Theft, External Theft, Administrative errors and Supply Chain errors. In 2019, shrinkage accounted for 1.4% of retail sales or over £5.4bn in losses. (Source: 2019 National Retail Security Survey)
According to a BRC Crime report, in 2019 Retailers spent around £1.2bn on crime prevention – the amount is 20% higher than the value spent in 2018.
‘There’s also a fifth category of shrinkage,’ says Matthew Hudson of www.thebalancesmb.com in his article ‘The Top Sources of Retail Shrinkage’:
‘which represents all of the unidentifiable reasons for loss in your store. A common misperception is that retailers absorb shrinkage as part of the cost of doing business. While retailers have to factor loss into their bottom line, it’s a costly problem for all.
Hudson continues, highlighting the growing – and painful – financial hit posed by these loss prevention problems:
‘The survey also indicated that the retail landscape is changing, with more online shoppers bringing new challenges and fraud risks. Those surveyed indicated their budgets for loss prevention (LP) efforts will increase by 44.5%, with 68.2% of respondents saying they’ll implement new technology, as well as hire IT staff with strong analytical, cybersecurity, and investigative skills to help combat fraud.’
When it comes to the convenience sector, losses are also significant. The Association of Convenience Stores (ACS) 2020 Crime Report highlighted that crime against the sector costs an estimated £211 million – equivalent to 7p per every transaction that takes place in the Convenience sector. According to the same source, currently there are circa 46955 convenience stores in mainland UK and combined they generate total sales of £44.7bn.
A further £209 million has been spent on measures of prevention. On average each store spends an additional £4,504 to mitigate loss. The top areas of investment are CCTV, external security, cash handling and storage.
Smaller retailers are somewhat more able to implement partial solutions without breaking the bank, but almost every store, big or small, is susceptible:
‘Few retail stores can claim immunity from shrinkage: Supplier fraud, employee theft and shoplifting erode profits in all types and sizes of stores. The Checkpoint Systems website reported shrink cost U.S. retailers 1.5 percent of sales in 2012, statistics gleaned from the 2012-2013 Global Retail Theft Barometer. As a small retailer, you can take inexpensive staffing, merchandising, inventory control and policy actions to stem these losses.’
The growing problem of Organised Retail Crime
So larger retailers have a steeper mountain to climb. In addition, Organised Retail Crime (ORC) is a developing and growing issue for retailers.
(Retail Dive, 6 January 2021)
‘As the average cost of organized retail crime grows, 52% of retailer respondents said their company is setting aside more tech resources to address risks, according to a December report from the National Retail Federation. Just over a third (36%) said they are increasing their loss prevention budget.’ https://www.retaildive.com/news/organized-retail-crime-costs-retailers-nearly-720k-per-1b-in-sales-nrf/592900/
Last week, losspreventionmedia.com reported that
‘Seventy-five percent of retailers surveyed report a slight to significant increase in ORC. As a result, 61 percent are prioritizing this problem more than five years ago. Fifty-two percent are allocating additional technologies and 36 percent say they are increasing their annual loss prevention budget to address LP risks.
Tony D’Onofrio’s report last week in Loss Prevention Magazine, entitled ‘The Favorable Post-Pandemic Future of Retail Loss Prevention’, further cites McKinsey.com‘s recent research on the changing nature of theft and loss inStore. This is no longer merely a huge problem of physical ‘shoplifting’:
‘Retail crime trends have been changing for some time. Loss prevention and asset protection have not been immune from COVID19 innovation acceleration. As recent McKinsey retail research explained, in a matter of 90 days in 2020, we vaulted forward 10 years in consumer and business digital adoption.’
In another excellent piece in Loss Prevention Magazine (August 2020), additional to operational errors, internal issues, and external losses, ‘there are many different causes that may result in retail shrink and lost profitability:
- Operational errors can involve paperwork issues and other operational missteps. These incidents typically occur when processing a transaction, receiving merchandise, shipping merchandise, or taking inventory.
- External losses can involve theft by customers (primarily shoplifting), issues involving vendors, or other incidents that pertain to those not working for the company.
- Internal losses are the result of incidents that involve store associates and other company employees who take advantage of opportunities to steal from the company.
- In addition to theft issues, damage, waste and spoilage are among the concerns that can directly contribute to a company’s losses.
Inventory control becomes a hugely important priority as a result, the article continues:
‘When merchandise is stolen or otherwise unaccounted for, it not only impacts the company as a result of the missing product, but also skews our inventories in other ways. The impact goes beyond current sales; it also affects product replenishment and future sales as well. This can have a significant influence on the bottom line and even on the overall health of the company. Every year shrink issues cost retail businesses tens of billions of dollars. This is a real and growing problem that affects all of us in a variety of ways.
‘This is a much more complicated problem than simply accounting for the theft of merchandise and the direct loss of profits. Managing shrink is a critical aspect of inventory control, which involves the management of the supply, accessibility, storage, and delivery of the company’s goods. As a result, shrink management strategies require a multifaceted approach in order to successfully manage the process. This is an important concept for every retail manager to learn and understand and will have a direct impact on company — and individual – performance.’
Clearly then, in 2021 the need for more co-ordinated solutions to all facets of Loss Prevention, theft and shrinkage are paramount.
The importance of a smart approach to Loss Prevention
As long ago as 2010, Retail Bulletin’s Loss Prevention Forum highlighted the importance of exactly this ‘smart approach’:
‘Loss prevention has redefined its role and aligned itself with operations so that it is no longer seen as a function that concentrates solely upon preventing loss at the expense of sales, but as a creative department that problem-solves and maximises the potential to achieve both.’
Key headlines from the forum included a simple but compelling tie-in between CX and LP:
‘Good customer service is good loss prevention as store managers are out on the floor not only selling, but protecting their stock.
‘How loss prevention or profit protection was perceived within the business depended upon the dominant culture of the organisation, but it was often seen as the last chance saloon for problem solving as many departments incorporated other functions including buying and merchandising, operations, risk, health and safety and even licensing within the LP (Loss Prevention) remit.’
It’s clear that operations teams need to knit together customer service and the spectrum of operational systems with their Loss Prevention approaches. And marry them at a molecular level. In exactly this way, SWL’s brand portfolio of Retail Productivity solutions work at the heart of your business’s DNA. Our ‘Roadmap to Zero’ programme can operate effectively within this integrated framework to optimise all of your retail operations while minimising store loss.
Video camera surveillance as part of the Loss Prevention solution
Video camera surveillance has long been a key part of LP approaches, of course. And as Losspreventionmedia.com’s Hamish Dobson reported only last week, improvements in video technology present important advantages for retailers, right now:
‘Not all retailers take full advantage of the existing video security options in the marketplace. The cameras on the market today cameras have vastly improved from those in recent years, offering tangible benefits to retail businesses that go beyond standard security. As the global pandemic continues to bring forth operational challenges and regulatory hurdles, commercial spaces require a robust video security system to not only help ensure the safety of shoppers and employees, but also improve operational flexibility with reliable and intelligent monitoring.’
Improvements in video surveillance are increasingly becoming paramount. Retail Bulletin’s recent article ‘How retailers are leveraging video in the fight against shrink’ (21 January 2021) focuses on the advantages of improved video technology inStore.
‘As retailers continue to adapt in COVID-19 world, they’re also noticing a rise in shrink. Opportunistic theft in particular is growing, as criminals seem to be taking advantage of retailers being distracted by the pressures of running stores under strict safety guidelines.
New advances in video technology are helping retailers up their ante in the fight against shrink while providing a safe, secure shopping environment in a COVID-19 world. Today, retailers can leverage their existing video equipment for even more value with insights to help manage shrink, improve safety and streamline operations.’
But it’s also clear that improved video technology is only one facet of the Loss Prevention conundrum. A smart, co-ordinated over-arching strategy is required. And this is where SWL’s ‘Roadmap to Zero’ steps up to the plate.
The need for a forensic tool against inStore loss and shrinkage
Security Magazine’s article from April last year emphasises the need for such a forensic tool:
‘SCO (self checkout) and frictionless shopping are here to stay. So, LP (Loss Prevention) personnel need a good investigative tool that will allow them to effectively target instances of theft in their stores. ‘
’10 Ways to Keep Shrinkage Low’ is an excellent, in-depth study by criminologist Adrian Beck at University of Leicester. It draws on strategic, cultural and operational approaches to loss prevention, as discussed by a panel of leading retailers. The conclusions are fascinating and important, and a key finding is a call for operational managers to adopt a pro-active rather than reactive loss prevention strategy.