Eye on Loss Prevention

News
Retailers can use existing loss-prevention initiatives to reduce shrink.

Based on our 2008 work, we have one resounding answer. The number of people who downloaded our “Winning Trends in Loss Prevention Benchmark Study” has been astounding. And the amount of reader correspondence is testimony to the fact that loss prevention is one area that requires significantly more education and discussion.

Initially, we set out to prove how the sources of shrink have changed. And we anticipated a brand-new set of business challenges to emerge. Instead, the issues retailers face remain almost entirely unaltered.

Retailers really do believe that their employees and customers are stealing from them. The worst-performing retailers are more concerned about employee theft than their peers.

While 56% of retail winners (those outperforming their peers in annual sales growth) believe employee theft is one of the top three sources of shrink, 80% of average performers and 70% of laggards believe their employees are stealing from them.

This trumped customers as a source of shrink by a wide margin, as 53% of average performers ranked customer-merchandise theft as a top-three concern.

It’s incredibly hard to create a customer-centric store when your core belief is that your employees, your company’s face to the world, will steal from you at the first opportunity.

Even as identity theft, fraudulent returns and credit-card transactions hold center stage in television commercials and media, retailers are far more sanguine about the problem. For the most part (especially in North America), retailers bear little-to-no financial responsibility for fraudulent transactions. This responsibility tends to rest with the banks, having little impact on retailer gross margin—to date.

We could also say that the total cost to retailers in any case, particularly in North America, has been little more than an inconvenience. Here’s the bottom line: Barring some specific online exceptions, fraudulent transactions don’t yet have a large impact on the typical retailer.

Perhaps we should have been less surprised at the persistent thread of employee mistrust among retail respondents. Nonetheless, we find the direct statement by 74% of retailers, “We can’t trust our employees” somewhat stunning. This was true regardless of segment, size or performance.

But while conducting this study, Paula Rosenblum (author of the report) also discovered that the opportunities that exist within loss prevention are extraordinary. In fact, “Fifty-six percent of retailers believe they could reduce shrink by 10% to 25% with new LP initiatives used to recoup gross margin losses.

“These retailers believe their most important opportunity lies in leveraging existing investments, specifically by adding a fresh infusion of BI. One obvious opportunity: finding more intelligent ways to use the video-surveillance systems they have already purchased. The opportunity to add better and more efficient rules into returns, sales-audit and cash-management systems also promise returns on investment not yet seen.”

If you haven’t already read this year’s Loss Prevention Benchmark, we invite you to download a free copy. And just a few weeks ago, we launched a brand-new survey. We’ll be analyzing the data in a few weeks and will have a full report in November.

Since 86% of retailers in RSR’s earlier benchmark survey said they use some form of video surveillance as part of their loss-prevention (LP) programs (with sub-optimal results), we’ve added a slight twist. The new survey focuses on the same LP tenets as this year’s study (theft, fraud, budget constraints and intended buying patterns), but also looks at how retailers are leveraging new video technologies in support of their existing surveillance asset base, and whether or not these technologies are driving performance improvements.

We strongly encourage retailers interested in this subject to take our completely confidential survey. After all, one of the most important things the findings teased out this year is the need—and value—of ongoing LP discussion across our entire industry.

© 2014