Survey Finds Operational Plan to Reduce Retail Industry Shrinkage by $18 Billion
The always insightful Loss Prevention Magazine in its September-October issue features a survey by ECR Europe that should be read by not just Loss Prevention (LP) pros, but also the CFOs of every retail company.
Lessons from Low-Shrink Retailers - Nine Ways to Save $18 Billion deserves attention because in researching the loss prevention strategies of five retailers with much lower than industry average rate of loss, they unintentionally unearthed an operational plan that could save the retail industry billions of dollars in shrinkage.
Writes Adrian Beck and Colin Peacock:
“When you look at the average rate of loss for these companies [Target Corporation, Limited Brands, Best Buy, CVS/pharmacy, and The Gap] as a whole (0.9%), compared with the industry average (1.59%), then it is perhaps easy to see why they were consistently selected by the panel of experts. Indeed, together their improved shrinkage performance is worth as much as $1.1 billion a year, and if the entire sector could achieve similar results, then shrinkage could be reduced by as much as $18 billion.”
Eighteen billion dollars is a lot of stolen baby formula and Nike shoes.
How did these companies reduce retail fraud?
The five companies that participated in the survey had these nine common traits:
- Establishing senior management commitment
- Ensuring organizational ownership
- Embedding Loss Prevention
- Providing strong leadership and developing a team
- Using barometer management
- Innovating and experimenting
- Talking shrink
- Prioritizing procedural control
- Empowering store staff
For a full explanation of these ways to shrink shrinkage, please read the article in its entirety.
Interesting, (to us, at least) four of these nine traits can benefit from an identity resolution solution that can rescue retailers from Loss Prevention Magazine calls the “data desert.”
Writes Beck and Peacock:
“…until relatively recently [the five retail companies] have largely operated in a data desert, often making decisions based upon gut instinct and guess work rather than solid data and informed analysis. Indeed, in the absence of reliable and timely data, the industry has tended to focus almost exclusively on the most overt form of shrinkage—external theft—to the detriment of other key problems, such as internal theft and process failures.”
Here’s how identity resolution can help.
Providing strong leadership and developing a team
For pre-employment screening and tapping into external databases to identity current staff with public records of dishonesty, identity resolution solutions easily glide across multiple data sources (e.g., lists of known shoplifters, bad check writers, vendors, returns, perpetrators of organized retail crime, and LERPnet) and finding linkages that indicate fraud.
For more, see Employee Screening: An Ounce of Prevention is Worth a Pound of Lobsters
Beck and Peacock say it best:
“The need to be led by numbers and not by intuition was a clear message. How this was achieved varied between the companies, but all had invested heavily in ensuring that they could not only monitor the rate and extent of shrinkage at a highly granular level (almost always SKU level), but also that they could analyze data to seek out trends and deviant behavior, usually through some form of data-mining technology or software.” [Emphasis added.]
Innovating and experimenting
Loss Prevention is not a static field. A previously good employee suddenly turns bad. Criminals innovate and adapt to current LP strategy. These scenarios and thousands of others require real-time access to data and a flexible architecture that works with many different platforms, systems and even sister stores in other locations. A good identity resolution solution can help answer all these questions in real-time:
- How many returns has an individual really made?
- Has John Smith made 3? And Joey Smythe 4 more?
- Are you about to hire someone who has been caught shoplifting in one of your stores? Are they working there right now?
- Or a sister company’s store?
- Which employees are returning merchandise without identifying themselves?
- Who is purchasing at discount and returning for full price?
- Does a multiple-return item match a missing shipment?
- Are restocking fees affecting high-value customers?
- Is a ship-to address similar to a previously fraudulent address?
- Which customers have multiple identities? And why?
- Do any of those identities correlate to an employee or vendor?
- How can you trigger higher quality investigations?
- How can LP know all about a suspect they’re really dealing with?
- Is there a relationship between an incident victim and an employee eyewitness?
- Does John Smith deserve a red carpet?
- Or a red flag?
For more, see Identity Focused Retailing.
Prioritizing procedural control
Finally, for halting deviance and enforcing compliance in procedure, identity resolution solutions can make automated decisions and impact business processes in real-time, limiting the need for human intervention.
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