July 19, 2022
By Adrian Beck
The ever-changing nature of the retail sector has meant that keeping retail losses under control is not easy and constantly requires the development of new approaches, ideas and skill sets for those tasked to deal with it. What is clear is that many if not all organisations have struggled at some point to meet the challenges of this ever-changing retail environment and have experienced what has been described as the ‘retail loss prevention life cycle’, where companies will experience times when levels of loss are relatively high and times when they are relatively low.
For some companies the current trajectory could be one of a decrease in retail losses as the problem is receiving new focus, commitment, energy, leadership and resources, enabling the organisation to effectively manage the problem and reduce its impact on business profitability. Often this downward trend is triggered by a ‘tipping point’ being reached in the business such as retail losses reaching a particular value or percentage of sales that is considered unacceptable by senior management.
For other companies the trajectory of retail loss could be upwards due in part to external economic pressures on the business leading to a cut in resources, a lack of continued focus on the problem, possibly caused by complacency, new priorities emerging or a change of personnel within the business (both at senior management level and within the loss prevention team). Either way, much like economic cycles, the retail loss cycle is often seen as an inevitable and regrettable part of the retail landscape of most companies, with many seasoned loss prevention managers having been round this circuit many times in their career, particularly if they have moved between different organisations.
Maintaining low levels of loss is one of the most challenging tasks loss prevention practitioners have. This is particularly the case when a retail business reaches the conclusion that it has ‘done/solved’ the loss problem – the level is now at an acceptable rate and is no longer considered to be a priority worthy of special attention or additional resources. In addition, organisational amnesia can set in – the business begins to ‘forget’ why particular approaches, policies and practices that were originally brought in to control losses are now in operation. Moreover, other priorities can emerge that can actively undermine the capability of loss reducing activities, such as removing cash handling processes in order to save on staff costs or stripping out stock controls in the supply chain to also reduce costs.
The inevitable upward slope often awaits those companies that adopt this approach and once again the loss prevention team will have to wait for a tipping point to arrive before retail loss becomes a priority again.
However, it is not inevitable that this should happen – measures can be put in place to try and arrest this perpetual circling of the loss life cycle. As I have argued previously, the Loss Prevention Pyramid can be used as a potential wedge/break in the life cycle once losses have been reduced to an acceptable level. Of the 11 factors in the Loss Prevention Pyramid, two are particularly important in this respect: Organisational Ownership of the problem of retail loss; and the Embedding of Responsibility for its effective management and control.
The former requires the loss prevention team to work with other functions in the business to help them recognise that they have an important role to play in the control of retail losses; that it is a multi-functional problem requiring a cross-organisational response. The latter appreciates that while getting other functions to recognise they have a role to play is relatively achievable, ensuring that they prioritise and actively take responsibility requires that loss prevention activities are pro-actively and permanently embedded in their duties/job descriptions/key performance indicators. For example, Buyers may only recognise the issue of loss prevention when it negatively impacts upon their performance/bonus schemes. Equally, store managers will take the issue of loss more seriously if its management is routinised into their daily work plans.
In other words, it is important to ensure that ‘responsibility’ moves beyond merely lip service to loss and something for which organisational functions across the business are held accountable for and take an active role in its control. Of course, this can be easy to say but hard to deliver! Of critical importance is the education of the business on why loss matters and how it can dramatically impact upon business profitability – approaches such as Total Retail Loss can help to do this by explaining how losses affect retail businesses in more ways than traditionally thought.
As retail becomes ever more competitive, achieving and then maintaining acceptable levels of loss is becoming ever more important – the skill is often not getting losses down, but keeping them at a low level over time. I believe that the Loss Prevention Pyramid can play an important role in helping loss prevention practitioners break the retail loss life cycle.