Loss Prevention should be key focus during tough times
The continued tough trading environment has resulted in retailers focusing on better management of costs through driving efficiencies, pursuing rental concessions, and undertaking supplier rationalisation. But many have yet to focus their attention on the issue of loss prevention.
This was exactly the case at Space NK that had a long-standing stock loss level of 1.5% of turnover until it embarked on a programme to change the culture within the company and thereby reduce this figure.
Addressing loss prevention
Speaking at the recent 3rd Retail Bulletin Retail Loss Prevention Summit 2012 in London, Gregor Durston, head of loss prevention at Space NK, told delegates that “we were frustrated by the ever-stubborn shrinkage levels so we needed to increase awareness of how losses occurred”.
A number of initiatives were undertaken including introducing CCTV to see how products were being taken, identifying top 10 shoplifters, working with eBay to identify the previously anonymous sellers of stolen Space NK goods, undertaking irregular stock audits with external stock-takers, and enriching staff knowledge of refund policies and how to deal with different scenarios.
The result was that without having to change any external aspect of the business Durston says the stock loss levels fell to less than 0.4% of turnover after one year and currently stand at 0.5%.
Growing problem of refund fraud
A key focus for Space NK was on its refund policies and this is an area that Professor Joshua Bamfield, director at the Centre for Retail Research, forecasts will “become an increasing problem for some years”.
He cites the US where it accounted for $18.4 billion of losses in 2011, compared with $9.6 billion in 2009, and where nine per cent of all returns are either fake or fraudulent. The UK figure is £494 million but he believes this underplays the real number.
The growth is down to the fact this crime can be up to three-times more profitable than other theft and is also regarded as an easy way to defraud retailers. Bamfield recommends merchants improve their housekeeping to include: stipulating more timely returns from customers – M&S reduced its timeframe for acceptance of returns by 50%; checking closely all goods returned; and requesting ID checks, particularly in high-risk stores.
Introducing integrity tests
He also suggests ‘integrity tests’ on prospective employees might be introduced as a “significant” percentage of refund fraud is staff-based as they are often the gate-keepers to retailers’ refund policies.
Matthew Armstrong, UK head of business development at General Dynamics Information Technology, agrees and cites research that employee theft accounts for 22-36% of total retailer losses – worth around £1.8 billion.
A cause of this is his belief that there is a “big hole in the risk assessment” of prospective employees that is typically undertaken by HR departments. They use automated recruitment methods, do a job fit assessment, look at soft skills, and perform a background investigation but Armstrong suggests this fails to find out their attitudes.
By including online assessments into the recruitment process, to ascertain their attitude to reliability, integrity, and customer service, then he says it is possible to remove certain individuals from the recruitment process – with adjustable thresholds of acceptance.
Using analytics tools
Whereas most psychometric test assessments are interpreted by individuals Armstrong advocates taking an automated route that can determine conclusions more scientifically. The use of such analytics-based systems is certainly becoming more widespread in the field of loss prevention.
Jenny Alleyne, store services manager at The Co-operative Group, says she has been involved with developing a risk modelling tool that maps risk across the group’s 3,000 stores. A variety of data is input into the programme – including government crime figures and Police information alongside the company’s own data – which helps determine its high, middle and low risk stores.
“We can then look at where to invest and where less investment is needed. You can also skill the managers on aspects of fraud relevant to certain stores. With the high risk stores we’ll see what current technologies are needed and what additional training the teams need. It’s about taking more proactive action,” she explains.
The results are that the company is spending the same amount on loss prevention but it is being utilised more effectively – helped by the fact the new tool “reduces some of the complexity and allows decisions to be assessed more easily”. It is also making it possible to hold some of the budget back for new innovations such as camera over IP.
This is helping the group to counter the growing threat of organised crime. “We don’t have as much crime but we are finding that it is more organised,” says Alleyne.
Changing face of crime
This is also the case at high-end jewellery retailer Tiffany & Co. where external theft accounts for a hefty 80% of its losses. Hank Siemers, group director of security worldwide at Tiffany & Co, says: “Over the last five years it’s been a huge issue in the US. It’s a low risk and high reward crime, and 96% of retailers have reported it. The US government is passing legislation to make it a federal crime rather than a state crime.”
He says the internet is also helping these criminals because whereas the ‘fence’ aspect of crime previously involved a complex network it has been replaced by the web that enables stolen goods to be sold globally and “it’s got a comfort zone because it is anonymous”.
The solution to these issues is largely down to technology, according to Siemers, who says Tiffany is investing in GPS that allows it track employees in dangerous parts of the world, and monitor goods that are being transported.
Loss prevention technology can drive revenues
It is also investing in IP CCTV that has digital recording capabilities and analytics tools that not only help with the reduction of stock losses but can also add to the top-line. Siemers cites one retailer that has increased sales by 12% by accurately determining how many customers are visiting the store, where they went in-store, and how they interact with the outlet and the merchandise. “Cameras are not just a loss prevention tool, they can be for the whole organisation,” he suggests.
This is certainly the case with Paul Burlace, head of profit protection at Republic (retail), who says that using camera technology the head office team can dial-in to a store and review the products on the shelves: “They now don’t need to visit stores to see how products are being hung. We’ve saved a phenomenal amount of time and travel money.”
More collaboration needed
He is also keen to use social media as a tool to disseminate information on known criminals and their activities. “We need to use Facebook, so let’s get photos shared more widely. We need to get live data on loss prevention out there for our benefit. We should also be using mobile phones to our advantage because the criminals are using them [to help them with their activities],” says Burlace.
This could extend to collaborative initiatives between retailers, which Steve Frame, head of safety and loss finance at River Island, is an advocate. “It’s happening between retailers but it is too slow for me. Yes, I’d rather the criminals went to Next or New Look than River Island but I then also don’t want them coming back to me later on,” he says.
Bamfield, agrees especially when it comes down to fighting refund fraud, which he believes needs addressing as a retail-industry wide problem with the likes of the BRC potentially putting its weight behind the issue.
