How to Build a Retail Loss Prevention Strategy
10 Steps To Success
Shrink and margin erosion costs retailers billions of dollars every year. Theft, fraud, and operational errors not only decrease profit, they can also damage a retailer's reputation and negatively impact customer loyalty. Not all sources of loss are as obvious as something like an employee pocketing cash or Organized Retail Crime (ORC). More insidious, everyday incidents like employees offering out-of-policy discounts to friends or relatives can have a greater impact on a store's profitability than outright fraud or theft.
The primary goal of your retail loss prevention strategy should be to reduce shrink and margin erosions throughout the business. A comprehensive strategy should minimize profit loss caused by theft, fraud, and operational errors, while also improving customer satisfaction by keeping inventory levels accurate while ensuring the safety and security of customers and employees.
Below are 10 ways to make your Retail Loss Prevention Strategy efficient and effective.
1. Get Executive Support: Focus on the Size of the Prize
Your loss prevention strategy must address all areas of the business. In order to achieve this, you must secure executive support for your initiatives. You must present how your strategy and efforts align with company goals and affect profits by focusing on people, processes, and products.
The best way to secure support is to build a business case that focuses on the financial benefits of adopting a comprehensive loss prevention strategy. These financial benefits should include the additional profits from reducing shrink reducing expenses such as cash loss, improving margin across the business, and reducing claims by minimizing risk to the people and the company. The business case should include the benefits of reducing loss across all retail channels as this can significantly increase profits.
Collaborating with other departments can build a case for action that targets a specific problem like shrink, internal theft, or spoilage. Building awareness of a problem and the solution's ROI is a significant step to promote the need for change.
2. Adopt a Cross-Functional MindsetYour Loss Prevention or Asset Protection team cannot effectively reduce loss across the business if they’re the only team actively working to do so. As an LP/AP leader, you are uniquely positioned between merchandising, store operations, supply chain, finance, marketing, HR, and other functions within the organization to provide data, knowledge, insight, and tools to teams throughout the business. Your business must adopt an LP mindset into the fabric of their corporate culture to combat loss at every level of the organization.
This requires your LP/AP team to collaborate with other business units to:
- build awareness
- extend their reach into loss beyond fraud and theft
- and influence process and policy changes
Each department must understand how shrink, fraud, margin erosion, and operational inefficiencies impact the success of their department and the business. This type of collaboration and knowledge sharing can improve efficiencies throughout the business and provide more efficient use of time, talents, services, and resources.
Raising LP and revenue protection awareness, engaging senior management and peers, and executing programs responsibly are all part of a sound LP strategy.
Learn how Five Below Used Agilence to Build their LP Team from the Ground Up
3. Identify Sources of Shrink and Margin Erosion
Traditionally, Loss Prevention and Asset Protection teams have recognized four types of shrink – internal theft, external theft and fraud, administrative errors, and vendor fraud. However, as retail evolves, how we think about shrink also has broadened in order to cover omnichannel sales and operational execution. Technology and changing consumer behavior will push your team to adopt a more wholistic philosophy and understanding of what loss is and how to minimize it across the business.
A comprehensive loss prevention strategy must minimize total retail loss (TRL). This concept of TRL recognizes that loss happens across all business units, including store operations, management, supply chain operations, IT, and more. This includes 42 categories of loss including both malicious and non-malicious activities across the store, supply chain, digital channels, and corporate operations.
4. Acquire the Right Tools
Without the right tools, retailers cannot identify and measure different loss contributors or their impact on the organization. Addressing loss requires an understanding of what drives it. Taking an advanced approach to capturing, analyzing, and reporting sales across all channels will empower your team to get to the root of profit loss and recommend specific actions to correct it. Modern data analytics tools can analyze multi-channel sales data, pinpointing specific items, programs, transactions, locations, and even customers that put your organization at risk.
Exception-based data analytics is a core application that helps LP professionals identify outliers that put the company at risk. Exception-based data analytics include immediate alerts, notifying LP, Operations, corporate support, and other personnel of an issue that requires close attention. These alerts are an essential tool for a broad set of loss prevention and operational events that require immediate attention. Traditional approaches include sorting through mountains of data and validating exceptions in various systems and video platforms to unearth the evidence required to act. With today’s technology, LP can simplify the process by integrating transactional data to other systems including video. This integrated system approach saves time improves end-user engagement and produces more sustainable results.
5. Establish your Team as a Go-To Source for Operational Insights
In the past, companies depended on LP to have a keen eye for theft and behavior patterns. LP professionals are seasoned analytical thinkers, sifting through spreadsheets and transaction data to look for patterns. However, today’s technology provides new ways to ensure your team has the data they need to act in less time and contribute to the bottom line in broader ways.
Our research conducted in partnership with the Loss Prevention Magazine found that 81% of loss prevention and/or asset protection professionals agree that their team is often or always the go-to resource for fast, accurate reports about any operational issue. But this requires the ability to measure activities across all touchpoints, including supply chain product movement, in-store activities, eCommerce, health and safety, and vendor management.
Integrating multiple data feeds will give your team a full view of the customer's journey and associated losses every step of the way. Sharing these insights with other stakeholders will go a long way in building confidence in the program, earning your team a seat at the table for decision-making, and gaining buy-in for future collaborative efforts.
6. Balance Proactive and Reactive Approaches
Retailers always have to balance customer experiences and loss prevention. For example, hiding inventory in locked glass cases is a great way to prevent theft, but terrible for the customer experience and can even negatively impact impulse buying. Should LP professionals develop stringent policies that control loss but hurt the customer experience, or should they have policies that promote higher sales but at the cost of increasing opportunities for theft? The answer lies somewhere in the middle.
The ability to get to the root cause of profit loss allows loss prevention professionals to affect change throughout the business to prevent future loss in the same way. For example, if the business is seeing a rise in out-of-policy discounting, an awareness and training campaign highlighting their ability to pinpoint these transactions may prevent employees from improperly discounting sales in the future, saving the business both revenue from those sales as well as turnover costs. On the other hand, if staff is properly trained, limiting the number of manager overrides required at the point of sale may allow the business to use those valuable labor hours more productively to increase sales and improve customer experience.
Your team will always need to react to new types of fraud, disaster events, and other unpredictable sources of loss, but influencing policy and procedural changes that prevent loss from occurring in the first place should also be a priority for all loss prevention strategies.
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7. Fine-Tune Hiring, Training, and Awareness
LP programs succeed when the goal of preventing loss in all of its many forms is woven into the fabric of the company culture. That begins with hiring the right people and training them well. Employees who are educated by the company on the value of loss prevention, know the controls in place to identify offenders, and understand their role in preventing loss are less likely to participate in fraud and more willing to do their part to help the business be successful.
Make loss prevention a part of your new employee orientation. Explain that your business cares about its employees and wants them to work in a safe environment. Introduce them to the tools used to identify exceptional behaviors or loss. After orientation, make sure loss prevention stays at the front of your employees’ minds. Send status reports to managers so they get regular feedback on how their department, store, or team is preventing losses. Communicate regularly, perhaps in a company-wide email praising top-performers, to remind everyone of the importance of loss prevention.
Loss prevention needs to be enforced consistently for your efforts to truly take hold. A well-documented policy and regular training and awareness efforts will ensure these efforts stay top of mind throughout your business.
8. Use an Incremental Approach
Your loss prevention efforts should be treated as a long-term business strategy that can be customized to the business’s needs and implemented over time rather than an “all at once, all or nothing” approach.
A well-developed strategy will help identify and quantify opportunities. Prioritizing these by value or how critical they are to the broad business strategy will produce a set of quick wins. Areas that can be expected to deliver immediate successful outcomes can go a long way to gaining organizational buy-in and then be used to build momentum.
After a solid foundation is in place, the focus should shift to innovating and experimenting to stay ahead of new and emerging challenges always involving other business stakeholders.
9. Measure Success Wholistically
Years ago, success in LP was measured by closed cases of theft and fraud. This metric measured the number of cases that were identified, investigated, and closed with a positive outcome for the business. But that metric lacks the ability to measure proactive and preventative activities as well as other ways LP teams can contribute to the business’s bottom line.
Consider the real and perceived impact of the LP organization that identifies an enterprise-wide problem, quantifies the financial impact, develops a strategy to address, establishes a goal, and sets a timeline for meeting milestones and goals. Whether it be expenses, margin, sales, shrink, or other P&L categories at a high level, or more granularly, cash variances, promotion handling, price overrides, line voids, or refunds that contribute to specific P&L categories; this type of approach adds credibility to your team’s contributions.
This approach will incorporate many of the traditional metrics to measure progress towards a goal but the overall success metric will be the broad business impact. Cases are a small piece of the bigger picture of tangible LP results measured in ROI and overall profit impact. Other metrics such as improvement in in-stock conditions, reduction in other expense lines, reductions in sales-reducing activities (SRAs), and improved customer satisfaction scores can be great components of measuring the success of a Loss Prevention program or overall strategy.
10. Continue to Refine
As fraudsters refine their tactics and more sources of profit erosion become apparent, LP will continue to evolve its methods to detect and prevent loss. While it may seem a never-ending battle, LP refines its expertise by exploring new methodologies that make it easier and quicker to find sources of loss and protect the bottom line. Provided LP is part of the overall business strategy many of the potential gaps can be mitigated well in advance.
Continue to remind everyone in the business of the goals of your loss prevention program. Be open and transparent about how your strategy is working, share the metrics, and advocate for the successes of your team. Refining your strategy should be an ongoing process over time.
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