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Establishing a Maturity Model for Total Retail Loss

October 19, 2021
By Adrian Beck

Introduction

It is now 5 years since the first Total Retail Loss (TRL) report was published, although that was essentially a bookend to a longer journey of reflection and review on how retail businesses were experiencing and responding to the issue of retail ‘loss’. As the original report highlighted, the term ‘shrinkage’ or ‘shrink’ has a very long history, dating back to the 1860s, a time when I think we would all agree, retailing was somewhat different to what we see now! Despite over 150 years passing it is still remarkable that the retail industry has never agreed upon a standardised and accepted definition of just what ‘shrink’ means, with companies around the world continuing to adopt a plethora of ways to measure it. At a macro level, this definitional void has inevitably led to considerable problems in establishing rigorous and robust industry benchmarks on the scale and extent of the problem – how can data from different companies be aggregated reliably when what they are measuring might vary considerably?

It has also caused issues at the micro level, within businesses. Depending upon how narrow the ‘shrink’ definition is drawn, it can lead retailers to essentially ignore or side-line a range of losses that are impacting upon business profitability. This is certainly evident as retail businesses have become ever more complex – there wasn’t much omni-channel retailing or self-scan checkout options in the 1860s! Today, forward thinking loss prevention executives are having to take responsibility for a much more wide-ranging risk landscape and recognise that they are as much about acting as ‘agents of change’ within their businesses as they are catching thieves and installing camera systems. Moreover, the impact of ‘retail losses’, defined in the original report as: ‘events and outcomes that negatively impact retail profitability and make no positive, identifiable, and intrinsic contribution to generating income’, need to be understood in the round – ranging from lost profits from out of stocks to ‘porch pirates’ stealing deliveries from outside customers’ homes.

The Evolution of Total Retail Loss

Because of the way in which the term ‘shrink’ became stuck in aspic, increasingly limiting its applicability to managing loss in the retail world, the TRL concept was constituted in a way as to ensure that it was capable of moving with the times – as the risk landscape changes, so should the TRL typology. This was partly the basis of the second TRL report published in 2018 – to what extent is the typology still applicable and what if anything should change? This saw the typology increase in size from an original 33 categories to 42, primarily due to the growing influence of E-commerce activities. The report also offered a summary of the experiences of those that had begun to adopt the TRL concept, providing a series of practical steps and recommendations on how this might be best achieved. What was evident from this research was that companies were often adopting an incrementalistic approach, developing their own versions of TRL best suited to their operating environment. What subsequently became clear is that retail advocates could be characterised as being at different stages of TRL maturity, ranging from those about to embark, through to those that could be regarded as Developed or Established.

Models of TRL Maturity

MODELS OF TRL MATURITY CHART

As can be seen in the chart, the maturity model is based upon five key TRL indicators: KPI Focus Areas; Location of Loss Prevention Activities; Scope of Activities; Organizational Framework; and Data Capability. In turn, each of these can be used to describe levels of TRL adoption maturity: Pre TRL; Initial; Developing; and Established. For example, companies yet to embark on their TRL journey (Pre TRL maturity) can be described as focused upon inventory shrink as their sole KPI, looking primarily at retail stores, with an almost exclusive interest in malicious forms of loss, with the LP team pretty much acting alone, and with little data capability beyond inventory counts and EPOS data. At the other end of the scale, businesses with an Established TRL maturity can be seen as being interested in a basket of KPIs focussed upon all forms of loss that are manageably measurable and impact upon business profitability in any way; all parts of the business are considered to be in scope; responsibility for managing losses is embedded across the business, with senior management oversight; and capacity is in place to routinely collect, analyse and action a wide range of data points likely to identify factors negatively impacting profitability.

Moving the TRL Dial

Given the longevity of the term ‘shrink’ and its continuing use, it will undoubtedly take time for the concept of TRL to become more widely understood and used in the retail industry. It seems very clear that the risk landscape in retailing is changing and will continue to change as more and more business choices are made to try and remain competitive. This will require those tasked with navigating this new risk landscape to become ever more agile and better equipped to help their businesses to stay on track. It is hoped that TRL concept and associated Maturity Model will help them to achieve this goal.

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