By Steve Rowen, Partner
2/5/2008
At the beginning of the year, the RSR team got together to plan its scheduled research calendar. The goal was quite simple: to identify the topics that retailers and their partners need addressed most. What business intelligence are they craving? Which issues are not receiving enough attention in the current market?
Only a few weeks in, we already have one resounding answer. The number of people downloading our Winning Trends in Loss Prevention Benchmark Study is astounding. And the amount of correspondence we’ve had from these readers is testimony to the fact that Loss Prevention is one area of the retail market that requires significantly more education and discussion.
Initially, we set out to prove how the sources of shrink have changed. With those changes, we anticipated a brand new set of business challenges to emerge. What we found, however, was that the issues retailers face regarding loss remain almost entirely unaltered.
Retailers really do believe that their employees and customers are stealing from them. Ironically, the worst performing retailers are more concerned about employee theft than their peers. While 56% of retail winners believe employee theft of merchandise is one of the top three sources of shrink, a stunning 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, with “only” 53% of average performers ranking customer merchandise theft as a top-three concern. It is incredibly hard to create a customer-centric store when your core belief is that your employees, who are your company’s face to the world, will steal from you at the first opportunity.
And even as identity theft, fraudulent returns and fraudulent credit card transactions hold center stage in television commercials and TV and print news outlets, it appears retailers are far more sanguine about the problem. Certainly, 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. As a result, there is little impact on retailer gross margin from fraudulent transactions – to date.
If anything, costs associated with fraudulent transactions are taken “below the line” as extraordinary expense, and don’t affect the retailer’s gross margin. We could also say that the total cost to retailers in ANY case, particularly in North America, has been little more than an inconvenience. The bottom line – with some very specific exceptions in the online world, fraudulent transactions don’t yet have a large impact on the typical retailer.
As long-time retail veterans, 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 also discovered that the opportunities that exist within Loss Prevention initiative are extraordinary. In fact, “Fifty-six percent of retailers believe they could reduce shrink by 10-25% with new LP initiatives to re-coup gross margin losses. These retailers believe their most important opportunity overall lies in taking better advantage of existing investments, specifically by adding a fresh infusion of business intelligence. One obvious opportunity: the possibility of 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 the Loss Prevention Benchmark we invite you to do so. Like all of our research, it is available for free download to the entire retail ecosystem. But we also ask that you continue to share your feedback regarding the findings of this report with us by dropping a line. After all, one of the most important things the findings teased out is the need – and value – of ongoing LP discussion across our entire industry.
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