Retail Loss Prevention in Perspective

Retail Loss Prevention in Perspective

Professor Martin Gill

2016

CONFIDENTIAL

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Table of Contents

Foreword

Acknowledgements

Preface

Executive summary

Section 1.Benchmarking Loss Prevention

The role and scope of loss prevention

Structure

Reporting

Major threats

A strategic approach

The support of the Board

Setting budgets

Arguments for financial support

Section 2.Perceptions of effectiveness

Individual effectiveness

Improving Individual effectiveness

Benchmarking performances

The effectiveness of loss prevention overall

The effectiveness of guarding

The effectiveness of CCTV

The effectiveness of EAS

The most effective crime prevention tools

The value of business intelligence

The strengths and weaknesses of collecting data and building business intelligence

The value of crime partnerships

The criteria for engaging in crime partnerships

The value of civil recovery

The source of new ideas

Section 3.Summary Comments

Appendix 1: Methodology

About Perpetuity Research

About the Author

Professor Martin Gill

Foreword

The landscape in Security has changed significantly over recent years, and with that there is an ever increasing demand to ensure our strategies are robust and fit for purpose now and for the future. We are challenged regularly to demonstrate clear value in what we do,in how we do it, and to show effective deployment of resources in helping to create appropriate culturesconducive to reducing risk or loss, and improve/protect profits.

This paper has been produced for Security/Loss Prevention professionals to use to benchmark how they operate, the key measures they use to demonstrate performance and the management of resources to deliver their strategies against others within the industry. I would personally like to thank Martin Gill for pulling this paper together and for everyone who contributed. I encourageothers to use the findings to reflect on how their strategies compare to the industry, and take from it any best practices.

Clint Reid

Head Of Corporate Security

Marks and Spencer

Acknowledgements

I would like to thank Marks and Spencer for sponsoring this study and Clint Reid for being an effective point of contact. Indeed this project was Clint’s idea; to generate insights on current issues affecting retail loss prevention for the benefit of those working in the area. Clint was extremely helpful in making contact with all the retailers.

Ruth Crocker and JosephineRammmade helpful comments on a draft and Ashley Bennett helped with a variety of tasks. I am extremely grateful to all the interviewees who took part in this study. They by necessity must remain nameless but it will be evident that this report is based exclusively on their insights. I hope they, and the loss prevention world more generally, will find some benefits from the findings.

Martin Gill

Preface

The remit for this study was to better understand, from those involved in setting and implementing loss prevention strategy – some of the key issues affecting retail loss prevention. Retail loss prevention leads were contacted and asked to take part in the research. They were advised that the following issues would be addressed:

•The current role and scope of the loss prevention function and relevant responsibilities that are not controlled by loss prevention/security and why this is the case.

•How budgets are set and what the main influences are on this are.

•How departments justify their existence, specifically what data are used and how.

•The criteria used to justify different types of security measures.

•The amount of emphasis currently placed on business intelligence and any changes likely going forward.

•The value derived from crime partnerships (local and national ones)

•Perceptions of the effectiveness of civil recovery.

•The use and value of any corporate security plan.

•The most successful strategies for tackling theft.

•The most pressing issues now facing the loss prevention function: and what they will be in five years time and the reasons for these.

Executive summary

The world of loss prevention appears to be undergoing a period of change. Technology presents opportunities for both retailers and those who offend against them. That stated, one of the interviewees cautioned about exaggerating the dangers of trading online, pointing to the widespread availability of third-party checks which enable retailers in most cases to know who they are dealing with. The problem with protecting against hacks into databases and cyber attacks that could affect the reputation of the business offer more of a challenge.

While organised crime is perceived to be a more significant problem now than in the past, the aggravating factor appears to be a strong view that the police are ever more neglectful of retailers. This problem is stoked by other trends such as a tendency to have fewer staff available on the shop floor (and thus less oversight of it); the speed with which retailers make moves in the market to gain a competitive edge without the time to assess the loss/security implications; and the growing practice of opening stores in difficult geographical areas. Against this background, margins in retailing were generally seen to be tight and it was becoming increasingly more difficult to get support for spending on loss prevention measures, although there were some notable successes.

Those interviewed generally (but not exclusively) felt they were doing a good job although for most there was room for improvement. Most felt they were supported by the Board but again there was often room for improvement here, and part of the difficulty was that loss prevention was typically distanced from the Board. Moreover, while most were judged at least in part (although often in large part) on loss figures it was noted that this was not something over which they had complete control. Resources were seen as tight and this was sometimes a limitation interviewees said they had to work within. It was seen as difficult to compare performance because figures on shrink were deemed unreliable; it certainly complicated comparisons. Some retailers are moving to ‘Total Loss’, and this is creating a slight change in focus.

Guards were seen to have a use in responding to problems and in providing a visible deterrent but some pointed to lower losses even when guards were taken out of stores. Likewise CCTV was sometimes seen as an essential part of a strategy but others pointed to out of date technology and cameras not being used to their full potential even when present. EAS was sometimes seen as effective against opportunists in particular but also as a poor relation to RFID although for the most part the jury was out on this when assessed in terms of theft prevention rather than stock management. In short, all security measures were seen as good by some and not by others.

That said, the favoured crime prevention tool was most often staff; offering both a visible presence and an opportunity to prevent thefts and intervene when necessary. Going forward there is likely to be a greater use of data and linking different databases to inform loss prevention approaches. There were mixed views of both civil recovery schemes and the usefulness of crime partnerships. It was not so much that when done well they were not both praised, they were. Rather it was the case that often practice did not match the potential to influence loss reduction. This was the cause of some anxiety and highlights areas where there are opportunities for improvement.

Those working in loss prevention claimed to generate ideas and insights from each other, and there was willingness to work with others potentially pooling resources where appropriate, to improve the loss prevention lot. While some lamented that loss prevention has not raised its game sufficiently others saw potential via greater use of data and intelligence, better use of technologies, more effective engagement from front line staff and via – in certain circumstances – sharing resources to increase their future impact.

Section 1.Benchmarking Loss Prevention

The role and scope of loss prevention

1.1Some eschewed the term ‘loss prevention’. One retailer combined ‘loss and safety’ but hoped to move away from that as it was a ‘niggle’. Others preferred ‘profit protection’ because it was more positive in outlook and it invited a focus on a range of different areas that contributed to profits. Some functions – especially the bigger ones - held responsibility for different areas and these included preventing losses in warehouse and distribution; online; investigations, protecting buildings and premises and crisis/continuity management.

1.2Some preferred the word ‘loss’. One retailer had changed to using ‘loss prevention’ from ‘security’ because it helped attract more and better recruits. This followed work by its Human Resources Department which indicated that those interested in joining the retailer and working in this area tended to search for ‘loss prevention’ rather than ‘security’. Another chose ‘safety, security and resilience’ because it better reflected the work of the department. Sometimes loss and security were tackled in different departments headed by different people.In at least one case this reflected a stance taken by a retailer that these were different jobs with different skills sets. Moreover, theywere accountable to different parts of the business and so reported to different heads, loss to the Head of Retail Operations and security to the Retail Director.

1.3Some felt that the word ‘loss’ had negative connotations, and another that it was no longer fit for purpose as they moved towards ‘total loss prevention’. The words ‘Total Loss’ are finding their way into common parlance and indeed into practice, albeit some claimed this has been practice for a while:

‘Loss Prevention is responsible for everything, non-malicious loss such as a systems issue, we would take the lead and engage with stakeholders, it would be any loss with any activity.’ (L)

1.4At the time of the research at least one retailer was looking for a new senior role that will cover the total loss agenda. Interviewees were asked for examples of loss within the company which they did not control. On some occasions examples pointed to overseas operations which the interviewee was not responsible for, another made reference to stocktaking, delivery process and discrepancies, fraud, logistics, the security tender process and other broader security roles including risk management, but other specific points included:

‘Wastage, markdowns are not mine and I don’t want them, because in my opinion it is driven by supply chain colleagues and I can’t affect that in the same way. Supply chain people having responsibility works much better.’ (A)

‘Insurance, no cross over there, no cross over with compensation, I would like to, because I think we are over generous, but everything else comes to me.’ (B)

‘Cash reconciliation (retail); error reporting and finance reporting including the investigation which we pick up by exception’ (C)

‘Waste, and other processes.’ (D)

‘Health and safety claims I don’t have responsibility for. Nor where the company may be sued for defamation. And none with buying or managing losses in the supply chain, at least I take over from goods arriving in the warehouse. I am not really keen to own more. They are specialist areas in their own right and I work with people in those areas and I can advise and dip in and out.’ (E)

‘We don’t control ROI on promotions. We mark products down 30% to sell them but we are asking who is analysing data to say whether this is profitable? This could be loss, we have always done this, and that is why total loss is so interesting, it makes us think.’ (F)

‘Margin erosion, if it had fraud element yes, but not due to selling a collection below its retail value due to say a change in the weather’ (G)

‘Margin erosion, markdowns from discount, they seem to think this is a cost of doing business. Asset management of corporate assets is managed by IT. They issue and then manage the asset.’ (I)

1.5There were several factors which influenced whether the loss prevention team covered more than crime-related loss, and prime amongst them were the extent to which the retailer embraced total loss, and the extent to which the loss prevention department felt it could contribute to different areas. While some interviewees revealed an interest in wanting to look for new areas to influence, for others there was a feeling that total loss would be out of scope, while others pointed to experts in the company who already dealt with such areas.

Structure

1.6The size of loss prevention departments varied considerably, and key influencers here were the size of the retailer; the geographical area the team were responsible for; whether the role was group wide; the retailer’s appetite for and perceptions of risks; the location of stores, with those located in city/urban areas sometimes being seen as meriting more attention; the type of goods sold by the retailer and the channels via which it did this; and whether they were all in-house or also used suppliers. More generally it reflected the philosophy and attitude of the company towards protecting against loss. So in some cases it involved a loss prevention manager working alone or with a small team advising and supporting operations in stores. The largest department was about 100 strong excluding guards and other suppliers. Some, for example, had sizeable investigations teams, some had stocktaking within their remit, some were responsible for fraud and some for online.

1.7Retailers reported into different roles including Central Retail Director, Operations Director, Finance Officer, Chief Operating Officer, the (country) MD, Logistics, the main Board and inevitably there was a range of positives and negatives associated with these. For example, one interviewee who reported to the Head of Retail saw more advantages than disadvantages:

‘My biggest customers are retailers, protecting people and stock and this predominantly is in stores and so this is a good connection and enables me to cut through on changes quicker. The cons are, there are a number of responsibilities that are nothing to do directly with retail, such as depots, store support centre sites and require much broader engagement.’ (A)

1.8Others reported problems in reporting to retail because of the potential for conflict; not least in circumstances where what was good for retail may not necessarily be best for the loss prevention role. It was noted that there was always the danger the interests of loss prevention could be stifled:

‘Our retail think they know the right way and it would be toe-to-toe every day, so the fact they are in charge of us means they can control what gets released to the business at least to some extent.’ (C)

‘The good thing is that we are in retail operations, so we know what is happening in the retail environment, and we are part of the team so retail management is easy, and I have a slot at retail meetings, so my sphere of influence in this area is very high. But retail does not always know what is good for retail. The retail Board member can ignore things. Also fighting for budget is interesting, because although the person is supportive the retail director has a limited budget and justifying ROIs against the competition can be difficult.’ (I)

1.9There were at least three other issues that were as important as who one reported to, these were the closeness to the board; the personality of the person in question, and related to this, how prepared and willing he or she was to support the work of the team; and implications could arise when there was more than one person to report to. Being on the Board and reporting directly to the Board was generally perceived to be a major benefit:

‘No cons at all, only pros. The role has visibility and puts our work in the mindset of the board, there is just a one stop shop to approval, and information from me flows easily and I get feedback. The person is supportive and I believe that is because our delivery is good.’ (F)

‘Good from my perspective because we have a lot of interaction with the board. It brings confidence, recognition for work, just get a better feel for where the organisation is at the current time.’ (L)