The Changing Dynamics of Retail Shrinkage

12/1/2000 | Palmer, W., ADT SolutionSource Newsletter

In today’s ultra-competitive retail industry, the pace of change initiatives, introduction of new customer service initiatives, and implementation of new technology and systems continues to quicken as companies strive to win market and purse share. When combined with the on-going issues of high turnover and low training of personnel, systems and operational context is rapidly overtaking other historical factors as the key determinant of shrinkage performance.

Retail loss prevention executives, charged with controlling shrinkage and losses, can no more stand in the way of these changes than a child can plug a leak in a dam with their finger. Rather, they are challenged to support these changes and improvements while maintaining losses at budgeted levels. There are two primary reasons these initiatives and projects can adversely affect shrinkage – lack of loss prevention involvement and lack of budget for necessary controls and interventions.

Lack of Loss Prevention Involvement

This challenge can only be met by taking an active role in the planning process of these projects, most of which are not considered to be “loss prevention” projects. In fact, in many cases, project leaders do not even seek out the loss prevention function, not because of any Machiavellian impulse, but, rather, because they do not realize potential loss exposures or see any pertinence to shrinkage efforts.

Therefore, it’s incumbent on the loss prevention executive to actively seek out and engage themselves in these projects to assess potential shrinkage impacts. Projects such as upgraded distribution systems, automated price change capture, POS enhancements, relaxation or elimination of traditional controls and management approvals, implementation of stored value cards, and implementation of RF scanning are just some examples of projects which have caused retailers significant degradation of shrinkage results.

Through early engagement and involvement in the development process, the loss prevention executive can anticipate potential exposures and influence the business specifications to eliminate or mitigate these exposures. They can also incorporate controls, deterrents, reporting, and education into the implementation phase to address potential issues before they become a painful reality manifesting increased losses and theft.

No Budget for Necessary Controls

Once the exposures are identified, the next key objective of this early involvement in the project planning process is to incorporate the expenses necessary to prevent shrinkage into the project budget. Since the primary driver for most of these projects comes from outside the loss prevention function, most project plans and budgets have not incorporated expense projections for necessary controls such as exception reports, physical security measures, loss prevention payroll, training expenses, etc.

The loss prevention executive must make a solid business case for inclusion of the appropriate expenses associated with the implementation of the new project, procedure, or technology by using return on investment analysis. Additional supporting statistics such as case histories and benchmarking other retailers’ implementation of a similar initiative can also be used to support the requested expenses.

Conclusion

The rewards of this level of involvement in business projects are not only shrinkage control, but also a better understanding and involvement in core processes that elevate the loss prevention executive from the functional level to the strategic level. It seems clear that shrinkage performance and results will become more and more closely tied and integrated into the overall business objectives and strategies. The loss prevention executive who can succeed in this new context will be in high demand.