Category Archives: Commentary

Ikea Halts Expansion in Russia due to Corruption

Ikea, the world’s biggest home-furnishings retailer, has been held up over the past few years as the model of a company that has opened in Russia while refusing to compromise their corporate standards on bribery and standards.  But, apparently they’ve had enough.  The company says it won’t build more stores outside the Moscow region until local officials stop withholding permission for two of their outlets due to Ikea’s refusal to pay bribes to safey inspectors.

Ikea’s experience is not unique.  Carrefour, Wal-mart, Royal Dutch Shell, and Nestle SA have all faced trumped up government regulation according to the National Anti-Corruption Committee, a NGO based in Moscow.  To read more, find the Bloomberg article here.

Fraud/Corruption Continues in the Spotlight

It seems as if there is no end to high profile fraud and corruption cases in the news.  In the past couple of weeks, we’ve seen the two senior executives at China’s leading e-commerce site, Alibaba, resign due to pervasive fraud on their site and the former Security Director for Rooms to Go charged in a major kickback scheme by federal prosecutors.

In addition to the direct losses caused by these types of frauds, organizations face business disruption, bad publicity, and, in the case of U.S. organizations, potential Sarbannes-Oxley issues or FCPA compliance liability if the fraud or kickback involves government officials.  While this has typically been the domain of the finance or internal audit group, the Loss Prevention/Asset Protection function may have a role to play.  This topic certainly merits a conversation with your organization’s CFO to discuss how your function can support and assist on this important topic.

Guest Post on LPI Blog

Yesterday, LP Innovations published a guest column from me on their blog at titled “Loss Prevention as Management Science.”  In this post,  I argue that we need to do a better job, as an industry, of helping senior management understand that shrink results can be influenced by certain practices, routines, and activities that are largely within our control.

Senior management needs to view us as experts in what those tactics and techniques are and how they are best implemented within the context of a specific organization and culture.  This is in contrast to be viewed simply as “fixers” who can catch shoplifters, gain admissions from dishonest employees, and respond when a store manager breaks a key off in the front door.  Yes, those are things we do, but they do not encompass our mission or impact on the organization’s financial results.

As always, I would welcome your comments, disagreements, or thoughts…

Guest Blog: Eric White on “Making the Most of Retail Audits”

Getting Ready for 2011: Tips for Making the Most of Retail Audits

In order to prioritize 2011 retail initiatives, both LP and operations professionals must have current insights into what is going on across the organization.  With stores located in different states, regions or even countries, managers need to consider that each retail location faces different operational challenges, management strengths and weaknesses and economic and demographic environments.  These distinct circumstances make it nearly impossible for all stores to execute in exactly the same way. 

Yet for LP professionals working at the corporate or regional level, it can be difficult to obtain a clear view of what is happening at each individual location and the variance in execution.  In some organizations, managers may rely on word of mouth, conversations, and other informal communications, which provide neither a clear basis for comparison nor a comprehensive view of the situation.   

Most retailers conduct audits in an attempt to measure and compare consistency and compliance across stores.  While employed to some extent by almost all retailers, in many cases these audits are inefficient, ineffective and oftentimes extremely burdensome.  Some retailers use audits consistently to monitor highly regulated issues such as food safety and fire codes, but in areas like operations, marketing and security, retailers are not as committed to audits.  Other retailers effectively issue audits, but then fail to systematically follow-up on issues identified. 

In the year ahead, there is potential to use audits to monitor processes for improved insights and performance across the entire retail organization, but only if they are designed and executed well. This is not as simple as it may seem, as there are many potential pitfalls in audit design, issuance and follow-up.  Here are some tips for getting it right.

Simplify, simplify, simplify – Among the most common mistakes is making audit questionnaires too complex.  Multi-part questions force respondents to make a judgment call as to whether they should answer “yes” or “no” when the answers vary for different parts of the question.  Complicated questions that can be interpreted in a variety of ways also inhibit the effectiveness of the audit and can generate inconsistency of results due to variation in interpretation.  It’s best to ask simple, one-part questions that can be definitively answered with either a “yes” or “no.”

Design in coordination – Smaller, more frequent audits should be designed in coordination with larger, more comprehensive audits.  This serves to avoid contradictions in messaging and also to ensure that all activities are moving toward the same finish line.  The smaller, more frequent audits should align with a retailer’s more comprehensive, less frequent audits.  Meaning that if stores can and do pass the small audits, they should be well on their way to being able to complete the larger audit.

Ask the right things – Audits must be relatively short and manageable to impose minimal burden on the auditors and encourage them to participate in a timely manner.  In order to effectively collect the information needed about the great expanse of areas to be evaluated, it is important to focus questions around aspects of the process that may be broken.  For example, don’t ask “Are returns being processed correctly?”  Corporate already knows that returns are causing great problems in the store.  Instead, ask a series of probing questions such as “Are broken or faulty items that are returned being shipped back to the manufacturer within 5 days?” and “Are all returns processed with a receipt?”  The answers to these questions will help determine whether it is a problem with vendor warranties or return policies or if returns are simply being processed incorrectly without a receipt.

Practice immediate follow-up – Audits are a valuable tool because they indicate discrepancies in performance and areas that need to be addressed.  Retailers lose the value of audits if they fail to immediately follow-up by assigning tasks, opening investigations or sharing issues.  Retailers should identify tools and processes to assign immediate follow-up on issues after an audit.

With these tips in mind, retailers can ensure that their audits deliver meaningful information and serve as a catalyst for action.  From prioritizing risks that should be mitigated by loss prevention to identifying operational issues that need to be addressed, the effective use and follow-up of audits can position retailers to maximize their time and resources for the benefit of the company.

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We are pleased to feature this guest blog by Eric White from Wren Solutions.  Eric has over 20 years of experience in our industry and currently serves director of retail strategy for Wren.  White maintains his regular blog at http://www.wrensolutions.com/LPXtra_blog/ and can be reached via email at eric.white@wrensolutions.com.

Is E-commerce Lowering Your Shrinkage?

An industry colleague recently asked me if, perhaps, retailers might be lowering shrinkage rates, in part, by the growth of their e-commerce business.  It is not really a question that had come to my mind, but I think it is an interesting topic for discussion.  I’ve outlined his thought process below and would be interested in hearing some responses from our readers.

Most retailers have now branched into e-commerce, some in a significant way and others are just testing the water, and e-commerce transactions represent about 4% of retail sales in the U.S. according to recent government figures.  While e-commerce certainly has to deal with fraud, most e-commerce business is set up in such a manner that there is very little, if any, shrinkage in a traditional sense.  Retail organizations typically account for fraud, such as credit card fraud, on a separate line in their P&L.

Therefore, if e-commerce sales are being including in total company sales and yet they contribute little, if any, shrinkage dollars, does that understate shrinkage – at least in terms of comparison to historical data?  Could this be part of the drop we are seeing in shrinkage in the National Retail Security Survey results of the past couple of years?

What are your thoughts?