Retail Loss Prevention: Doing more with Analytics
he retail industry is in the middle of an unprecedented economic crisis. All retailers are trying to figure out how to cut costs, retain customers, conserve cash and more importantly stay in business. Recently, the National Retail Federation (NRF) polled readers of its SmartBrief asking them what was on top of their mind. Loss Prevention (LP) came in second only to the overall economy! It is no surprise given that every dollar saved from retail shrink is a dollar added directly to the bottom-line. Looking back in history, we have seen tough times like these are conducive for higher shrink ...view middle of the document...
Figure 1: 2008 Global Shrink by Region: $104.5 billion
[pic] 1. Source: 2008 Global Retail Theft Barometer
Figure 2: Sources of Shrink As Reported By U.S. Retailers
2. Source: 2007 National Retail Security Survey
The reported sources of retail shrink have been consistent over the past several years2. Loss Prevention (LP) executives in the US believe employees account for 44% of the shrink dollars followed by shoplifters at 34%. Retail shrink has been declining in recent years compared to the early 90s. Although this is self-reported survey data3, we still can directionally infer that shrink rate has been declining. The total dollar loss; however, has been rising due to industry growth. Although the latest shrink rate is at an all time low at 1.44%, several LP executives fear that this trend may reverse due to factors like rising unemployment, budget cuts in LP and pressure to drive top-line sales.
Figure 3: U.S. Retail Shrink Trend
3. Source: 2007 National Retail Security Survey
Common Loss Prevention Programs
Retailers use a variety of LP programs to combat shrink. These programs include screening employees before hiring, LP awareness programs, code of conduct training, asset control policies, standard operating procedures and several system implementations. The framework in Figure 4 outlines the overall objectives of loss prevention teams and how analytics fits in. The LP programs are implemented to meet three main objectives of any LP organization.
1. Deter: Objective here is to prevent the loss from happening in the first place. Given employees account for the largest portion of shrink dollars, it makes sense to put programs in place to screen candidates for integrity before hiring them, train them on asset control policies and make the employees aware of LP programs. Theft deterrents like alarms, signs and live CCTV are also used in an attempt to stop shoplifters and employees from stealing
2. Detect: Objective here is to identify the loss after it has happened as quickly as possible to recover it and apprehend the individual responsible. Programs like recorded CCTV, data mining software for point of sale, electronic security tags are put in place to detect theft occurrences
3. Defend: Objective here is to prevent theft from happening by putting physical or systemic controls in place. Examples of programs include cable/lock/chain for merchandise, refund control procedures, secure display fixtures and armored car pickup for cash deposits
Figure 4: Loss Prevention & Analytics Objectives Framework
The latest NRSS survey identified 72 LP programs used by retailers and the most frequently used ones are listed in Figure 5. Some of the programs meet more than one objective listed above. There is a complex interaction of these programs with their varied effects on shrink reduction. This makes it very difficult for a retailer to...