6 Trends in Loss Prevention and Store Operations Control for 2012

The following trends come from 3 primary sources. (1) The 2012 National Supermarket Shrink Survey, (2) Supermarket Executive Interviews by The Retail Control Group, and (3) 36 Store-level “Causes & Cures” Profit Audits conducted in 2010-2011.

Trend #1 – Theft. Theft is always a topic of concern when it comes to shrink, with 29% of all shrink coming from theft (amateur, pro & ORC). With companies reporting that 33% of shrink from theft as being preventable, companies are turning attentions to shrink from operations where 57% of shrink is believed to be preventable. Two primary areas of shrink loss occurred from theft were shoplifting of Meat ($21,485) and at the check-out by dishonest cashiers in companies not utilizing a pro-active, disruptive cashier performance monitoring system. This trends are causing a broadening the scope of engagement loss prevention and deeper integration and collaboration between Loss Operations. Prevention and Store Operations.

Trend #2 – Operations. With 64% of all store shrink occurring as a result of the absence of, or breakdowns in, store operations control best practices, still 74% of surveyed companies have not materially changed their key operating disciplines, standards or practices in the past 5 years. These companies report total store shrink of 2.47-2.85% (Av. 2.70%). 26% have developed new disciplines, standards and practice and thereby changed their expectations for shrink control and profit growth. These companies report total store shrink of 2.18-2.33%. Within these trends, there were 9 specific areas of operational control wherein the 64% of shrink loss occurred. With full implementation of assimilated best practices, up to 57% of shrink from operations was reported as controllable yielding (on average) over $187,000 per year profit opportunity per store with $425,000 in weekly sales.

Trend #3 – Perishables. With 65% of all store shrink occurring in perishable depts, we see only best-in-class (top 25%) companies employing new emphasis on implementing industry proven Best Practices. These companies are demonstrating an average 22% less perishable dept shrink than the remaining 75% of companies. As part of best-in-class important as shrink loss control is the inseparable connection between shrink loss and customer satisfaction, and therefore sales.

Trend #4 – Technology. There continues to be movement toward technology based LP, but with DVRs, DSD, POS and EAS reaching near critical mass, survey companies are reporting significant movement toward LP impacting technology that also has specific operational impact in addition to LP. An example of this would include: Table PC-based CBO systems, Scan-based Trading, Mobile device based store training programs, and intranet-based best practices communications and training (like SharePoint). This movement is notable in that it again highlights a cross-functional merging of business priorities between Operations and Loss Prevention. Caution is growing as retailers to strip-away technologies marketing hype and messages and commentaries and examine systemic results from technology expenditures. Executives are cautious of efforts without clear and consistent results. Technology value and effectiveness is dependent on implementation effectiveness and the average surveyed company reports IE at approx 55% and shrink reduction from technology at 8-9%. But when companies implement the use of LPX technology with Operational values, we see IE at 72% and targeted shrink reduction at 16%. Clearly, technology can help retailers to be more efficient, provide ever more information and control shrink, but technology without excellent implementation effectiveness over time remains a challenge for retailers.

Trend #5 – Implementation is Key. Best in class companies are examining and challenging their Standards of Operation in all store areas to streamline and improve operations while optimizing sales and profit. This movement is not centric to reducing labor expense as much as it is to improve profitable selling. These companies are reviewing their loss prevention organizations and reporting structures, technology effectiveness, store operations practices, store management and supervisor habits and practices and the role of internal audit as key areas for improvement.

Trend #6 – #1 leading BP = Inter-departmental “collaboration” emerging as the #1 best practice for companies working to reduce shrink and grow profit with consistent results, measurable impact and sustainable profit gains and shared/mutual and cross-functional accountability. Best-in-class retailers are evolving to this evolution as it touches day-to-day business practices, technology utilization, all ops standards, and employee and management training and garners consistency, break-out thinking for sales & profit improvement.