September 15, 2021
By Adrian Beck
The Pareto principle is a well-known and often quoted concept – the 80/20 rule – 80% of consequences come from 20% of causes. Equally, it is widely acknowledged and understood that risk is not evenly distributed in time and space – certain places and particular times can be riskier than others, particularly when thinking about criminal victimisation. Within the world of retailing in general, and loss prevention in particular, these realities are not only apparent but increasingly important in deciding how finite resources can be most effectively utilised. In other words, it makes little sense to simply spread resources evenly across the business hoping that this approach will deliver effective loss prevention. What is much more logical is to focus efforts where they are much more likely to be required and deliver impact – to focus on the vital few rather than the trivial many.
Once this principle is accepted, then it becomes important to think about how to practically operationalise it – what are the key areas where a differentiation of risk is likely to be apparent in a retail context and what subsequent steps can be taken to manage and prevent these risks? This is the foundation for the development of what has been coined the ‘hot’ concept – a methodology to begin to identify the factors in retailing that are more likely to generate higher levels of risk – the ‘hot’ issues that should be given priority when allocating finite resources.
As can be seen in the graphic, fours areas have been identified to help retailers better focus upon the ‘vital few rather than the trivial many’: hot products, hot places, hot processes, and hot innovations.
We are all aware that certain places may be riskier than others and within retailing, many companies now have some form of risk register for their physical stores, ranking them on several different factors such as retail loss history, levels of recorded crime in the surrounding area, number of incidents of violence, and so on. This is then used to prioritise security spend and direct the activities of the loss prevention team.
In addition, hot places can also exist within locations – certain parts of retail stores can be more vulnerable to loss than others, such as hard to observe areas where shop thieves find it easier to secrete stolen items, or back-room areas where products are more likely to be stolen or damaged, such as the unloading bay. Becoming attuned to this risk landscape can make a considerable difference when it comes to allocating and directing loss prevention resources.
Considerable research been undertaken on trying to understand which retail products are more likely to be ‘hot’ in terms of their likelihood to be stolen. Academic studies on stolen goods have identified the key aspects that make some items more susceptible to theft than others. The acronym CRAVED has been used to describe the key attributes: Concealable (easy to hide when being stolen); Removable (easy to remove); Available (easily accessible); Valuable (either personally to the thief or to others who may wish to purchase it); Enjoyable (generally the product is enjoyable to own or consume); and Disposable (a ready market for the stolen item exists). While parts of this model remain relevant, new developments in retailing, such as self-scan checkouts have made it more complicated to identify which products are likely to be ‘hot’, especially when the cause of the loss may be due to customer error rather than malicious intent.
Work by the ECR Retail Loss Group has identified five key forms of process that are particularly hot: Product Movements (increases the risks of damage, delivery to wrong location, wrong quantity, incorrect paperwork etc.); Handling (damage, exposure to theft, loss of paperwork etc.); Change of Form (reworking can cause loss of identification, damage and wastage etc.); Exchange of Ownership (as well as the risks associated with physical movement, processes relating to the transfer of information and money can also pose risks that may generate loss etc.); and Storage (increasing the potential risk of damage, theft, loss of value, obsolescence etc.). Carrying out ‘a day in the life of a product’ exercises can be extremely revealing in better understanding which processes may be more likely to generate greater levels of risk.
The fourth component of the Hot Concept relates to retail innovations. Understanding how and which retail innovations pose significant risks is challenging for loss prevention leaders – often they are introduced quickly and with little or sometimes no engagement with loss prevention teams, inevitably leading to insufficient knowledge and planning about how to manage any subsequent risks that emerge. A good example of a hot innovation is the self-scan checkout technologies that are now increasingly being used across the world. It seems clear, certainly in the Grocery sector, that this technology is now posing a considerable risk to increased levels of product theft.
Getting to Grip With the ‘Hot’ Concept
All companies have finite resources to combat the problem of retail loss and this is likely to become even more acute as retail competition and complexity develops further. While in the past loss prevention managers have had to rely mainly upon common sense, personal hunches and to a degree, retail mythologies to decide where to focus their attention, the growing availability of a wide range of increasingly fine-grained retail data points is enabling them to be much more considered in the approach that they now adopt. Moreover, as innovation continues at a pace, and becomes ever more important to the success and indeed survival of retail businesses, identifying which developments are likely to pose the highest risk will be a key role of loss prevention leaders. If the last 100 years of retailing has taught us anything, it is that few developments come without a modicum of risk – identifying and, where appropriate, managing those that generate the greatest risk should remain a cornerstone of the work of the loss prevention function – focusing attention upon the vital few rather than the trivial many.