By Paula Rosenblum, Managing Partner
12/4/2007
RSR will soon publish its first annual benchmark on the state of Loss Prevention in retail. We won’t give away all the details now, but thought it might be worthwhile to whet your appetites with some key findings.
For the Most Part, the Sources of Shrink Have Not Changed
RSR approached this study with a core hypothesis: that Organized Crime had become a key driver of retail losses. Our retail respondents have disabused us of this notion. In fact, for the most part, retailers believe that the sources of shrink remain the same: employees still steal money and merchandise and give customers “sweetheart deals” at the register, customers still steal merchandise, and clerical errors and missed markdowns still create “paper shrink.” It is true that the largest retailers, particularly those selling General Merchandise and Apparel, feel vulnerable to Organized Crime, but even these retailers had more top of mind awareness of traditional LP concerns.
Retail Winners Have an Edge Yet Again
As frequent readers of our research know, we define retail winners as those whose year over year comparable store sales outperform the rate of inflation, which we peg at approximately 3%. We have become accustomed to discovering that the sales success of these winners is driven by more than just the goods and services they sell. Once again, the Loss Prevention study showed this to be true. Retail winners not only outperform their competitors in comparable store sales, but they have found the time and methods to improve shrink. While 59% of retail winners enjoy a shrink percent better than the industry average, 80% of self-reporting laggards have a worse shrink percent than the industry average. (Note to readers, we used an industry average shrink of 1.7% of sales).
It seems counter-intuitive to believe that there is a correlation between better sales and better loss prevention, or even better sustained gross margins, but it’s true. We find that retail winners think differently than their peers. They operate less from reactive fear, and more from a clear strategy that translates into pro-active tactics across all areas of the business. When strategic thinking regresses to reactivity, retailing success declines quickly. The reverse is also true. When reactivity progresses to strategic thinking, retail turn-arounds are sure to follow. The success of JC Penney is one shining example of this type of retailer re-invention.
Tools and Techniques that Matter
In general, retailers seek to leverage the considerable investments they have already made in Loss Prevention technologies like Video surveillance, sales audit and returns and void management. They hope to create this leverage through a fresh infusion of business intelligence into their existing infrastructures. We expect video analytics to emerge as an important technology in the coming years. Retailers have mountains of video images, and not nearly enough people to review what could be seen. Similarly, retailers want and need better exception management tools delivered to sales and field management where they need it, close to the point of purchase or point of theft. And they need it in near-real time.
Finally, and most interestingly, Loss Prevention is one area where retailers do not keep secrets. Retail winners are more apt to participate in Loss Prevention Groups and events and read industry publications. In this area, at least, there is recognition that shrink is an industry-wide problem – and that fixing that problem is of benefit to the entire industry, not just one player.
Stay Tuned – Coming Soon
These are just some highlights from our findings. We expect to publish or benchmark report, titled “Winning Trends in Loss Prevention” by mid-December. We think you’ll find it informative and useful.
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