According to Loss Prevention Magazine, retail shrink rose TWENTY-TWO PERCENT in 2019, from $50.6B to $61.7B. LPM cites survey responses that indicate more employee theft, ORC, fraud and general shoplifting across the country and across the retail industry. Depending on which survey you subscribe to and what data you choose to follow, this may mean that retail shrink is growing significantly every year.
This news comes on the heels of 21 major retail bankruptcies YTD, during some of the worst Q1 and Q2 performances in the history of retail. Companies are finding out that loss is increasing everywhere while deterrence, legal accountability and resources to tackle the issue are plummeting. So is it hopeless for the near future? Do we simply make micro adjustments to product displays and sensor tags to staunch some of the bleeding and hope that the wounds aren't fatal? The common approach to Loss Prevention in lean times is to treat retail shrink like a recurring broken arm, determining what issue the business can reasonably fix or help if its leaders were to spend a little time or money focusing on it. After which, the leadership team returns all of its attention back to the core business, until the loss prevention problem arises again; at which point, they stop what they’re doing and again attend to the problem. This cycle is incredibly frustrating, draining and ineffective, because shrink and crime are not broken limbs. They are a fever. A symptom. A signal that there is a virus or bacteria within your own system. The good news is there is a better way and an easier way to fix what’s broken, although in the short term it will seem counter-intuitive and disorienting. The way to improve your Loss Prevention is by NOT focusing on Loss Prevention. Stay with me. There are many things that all retailers have to deal with: customer service, sales, personnel, operations, finance, etc. These are WHAT you do, and to be honest, probably the least important focus of your business. Loss Prevention is a WHAT, as in: "What are we gonna do about it?" It has nothing to do with the three most important questions you as a business need to ask yourself: WHO are we? WHY do we exist? HOW do we operate? For example: two men start bookstores out of their respective garages in the same year. One man decides to sell books door-to-door in his neighborhood, because he really liked reading books as a kid and wants others to experience that same feeling. The other man decides he will completely flip profit ratios and retail traffic structures on their heads in order to change global business forever and prove he's the smartest businessman who ever lived. See the difference? BUT THEY BOTH SELL BOOKS. Unless you are a Loss Prevention Company, LP probably has nothing to do with who you are, how you run or why you run your business, so focusing on LP can actually HURT your business. If you are a retail company that is focused on always delivering the greatest customer experience because you want to be known the world over as the "customer service company", then stopping a giant theft problem with steroided goons at your entrances to glare and snarl at customers is probably not the best decision.
Theft will go down, but you will become known as the "scary service company" instead. If you are a retail company focused on being identified with millennial professionals by offering quick, easy, self-service shopping, then combating ORC by hiring retired people at $8 per hr to walk around all day asking "Can I help you?" is probably not the answer.
It will help with ORC in the short-term, but your customers will also definitely disappear. So you don't focus on Loss Prevention. That is, UNTIL you have already focused on your business identity and strategy first - your WHO, WHY and HOW. Once that is done, you will be able to refocus every strength and every problem through those lenses and your loss prevention decisions (heck, every decision) become easier, more effective and less expensive. Take this case study: A fashion apparel company with the mission to make their customers the most fashionable people in the city (we'll call this business The Fashion Store.) The Fashion Store structures its model on building relationships with customers and developing fashion profiles to determine what brands, styles and accessories fit those customers' lifestyle, goals and spending money. It then leverages fashion "successes" to build out a network of clients and expand its reach. Now The Fashion Store has just laid off its loss prevention team and word has spread to the street that it's open for Organized Retail Crime . How does the leadership team respond? In order to make any decision on the ORC issue, the leadership team must know its core identity and strategy by answering some very important questions. Identity Questions: Who are they? Fast, smart, fashionable relationship-builders Why do they exist? To dress the most fashionable people in the city (and make those people the envy of their coworkers and friends.) How do they operate? Relationships are the most important part of their business, followed by the fashion they sell. Because fashion changes, they must move quickly and adapt at all times, and they must be honest with each other and their customers. Because relationships are so important, they must never tolerate behaviors that can hurt relationships, such as gossip, lack of teamwork, lack of responsibility or bad selling practices.
Strategy Questions: Who do they hire? Fashionable, smart, gregarious go-getting stylists who love spending time with people and being paid on commission.
How do they profit?
By building relationships with customers, styling them with the most enviable fashion that fits them best, having those customers come back again and again, and then gaining the business of those customers' coworkers and friends to build out clientele lists (profit per client relationship.
Rules they live by? Every employee shows up to work looking fashionable. Every employee works to intuitively predict a customer's fashion just by looking at them. Every customer walks out looking amazing, regardless of wealth. Every customer is the envy of their coworkers. Every customer knows and loves their stylist. Every employee gives attention to every customer in the store, from entrance to exit. Every employee knows all the current fashions. Every employee fills out a fashion profile for every customer, kept in the central database. Every employee gives every customer business cards to hand out whenever someone asks that customer where they got their clothing and accessories.
* Note: before you take any action, your leadership team must answer ALL of these questions with consensus. Only then can each decision regarding what you do be answered correctly and with the right intentions.
Ok, can you picture The Fashion Store? Can you picture the leadership team? The people they hire? They could be funny or serious, casual or formal, tall or short, but you know what is important to them and what makes them tick.
Now, the Organized Retail Crime starts to increase.
Does the HR manager staff the door with muscle-bound dudes in security uniforms or hire undercover detectives to arrest people? Probably not the best way to build relationships.
Does the merchandising manager wrap cables around everything expensive? Probably not the best way to show they care about the fashion or want their customers to try things on.
Instead, what characteristics could the employees exhibit that would speak to WHO they are, WHY they exist, HOW they grow their business, AND will also prevent theft? What behaviors will deter crime within their values and principles?
At The Fashion Store each employee can:
1. Greet every customer immediately when they walk in the door, introducing themselves and asking the customer to introduce themselves (relationship building AND theft deterrence)
2. Compliment what the customer is wearing and ask them questions about it (predictive selling AND theft deterrence)
3. Give a 10 second synopsis of the store and how everything works and where everything is (predictive selling AND behavior identification)
4. Offer to hold and/or carry all the customer's bags (relationship building AND theft deterrence/behavior identification)
5. Know what fashion is hottest on the street and therefore a potential target (fashion knowledge AND theft prediction)
6. When not with a customer, work next to the hottest fashions (fashion selling AND theft deterrence/identification)
7. Offer customers water or coffee and have an assistant, coworker or manager get it for them (relationship building AND behavior identification)
8. Start a fitting room for customers, know what items are being tried on, spend time in the room with the customers and clear out anything already tried on (relationship building/fashion selling AND theft deterrence/identification)
9. Walk the customers to the door, carrying their bags for them (relationship building AND theft deterrence)
10. Utilize managers on the floor with code words for fashion, sales, relationship or ORC assistance (relationship building/predictive fashion selling AND theft deterrence/behavior identification)
11. Answer the phone only if you are not with a customer (relationship building AND theft deterrence)
These are not only simple steps to financial and reputational success, but also to successful loss prevention.
Other tips for The Fashion Store:
If their hottest fashion displays are at the front of the store, they can move POS desk to the front of the store
They can create a secure area for customers' bags behind the desk
They can set up their POS system so customer identification is necessary for any sales or returns
They can determine what items are most at risk for theft AND are most likely to drive sales with the appearance of exclusivity, and they can lock those items up.
They can set up online alerts for the hottest brand names, so increases in sales/demand can predict potential theft attempts
They can teach their managers safe and proper confrontation and de-escalation techniques to stop theft in progress
They can create and teach the team a specific action plan for when theft is in progress
They can utilize GPS devices on the hottest items, so they or the police can track stolen items
They can invite the police to periodically stop by with the latest info and photos of potential ORC members, so employees can identify them when they enter the store
They can also meet with existing LP Teams in the same area in order to gain information
Many of these tips were inserted seamlessly into The Fashion Store’s current business practices, because they already aligned with The Fashion Store’s identity and strategy. By utilizing this technique, the Fashion Store was able to drive their shrink down almost 40% vs LY, and loss of their top 5 theft brands was decreased by 55%.
So what loss prevention steps can your business take that align with your core identity and strategy?
If you find it difficult to answer this question, then the issue may not be with your loss prevention, but with your identity and strategy. The solution is to not focus on loss prevention, but instead to focus on the most important questions about your business:
WHO are you?
WHY do you exist?
HOW do you operate?
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