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Loss Prevention Analytics: Gaining A New View of Retail Shrink
Loss Prevention Analytics: Gaining A New View of Retail Shrink
July 2013
Deena Amato-McCoy
July 2013
Loss Prevention Analytics: Gaining a New
View of Retail Shrink Analyst Insight
Eager to combat loss across their enterprises, retailers are rapidly adding Aberdeen’s Insights provide the
more intelligent solutions to collect data about the incidents causing shrink. analyst's perspective on the
However, too many retailers still rely solely on historical data when shaping research as drawn from an
loss prevention (LP) decisions. Unfortunately, historical data alone may not aggregated view of research
be enough to understand what is truly causing these detrimental losses. surveys, interviews, and
Retailers need to link existing loss prevention tools and strategies to data analysis.
intelligent analytics and reporting platforms to gain real-time — or near-
real-time — access to information that will not only help them understand
the causes of shrink, but combat it as well.
Some retailers are already making efforts to improve their loss-related
business intelligence initiatives. According to Aberdeen’s April 2012 report,
The State of Loss Prevention in Retail: Controlling Losses and Maximizing Profits,
43% of companies have integrated business intelligence exception-based
reporting in an effort to stay abreast of what causes shrink, and respond to
these incidents in a more proactive manner.
As more retailers adopt these tools, they too get better at managing data
and staying one step ahead of shrink. Aberdeen surveyed 99 retailers
between March 2012 and April 2013 to understand current pain points that
shape LP strategies, and prompt the use of more intelligent reporting
solutions. It is these solutions that will help them better predict
occurrences, and ultimately, make better loss prevention decisions.
incidents are on the rise. Currently, 41% of retailers report that employee Survey Respondents
theft of merchandise, as well as failures within front-end procedures, like Individuals answering this
cashier shortages and deposit discrepancies, are taking a toll on operations, survey came from diverse
compared to only 17% of retailers reporting the same information last year. geographies, industries, and
corporate roles:
Figure 1: Pressures Facing Retailers Compared Year-over-Year
Industries:
√ Retail – 59%
√ IT Consulting Services – 15%
√ Wholesale / Distribution –
15%
√ Manufacturing – 8%
√ Healthcare / Pharm – 8%
√ Food / Beverage – 7%
Roles:
√ C-Level – 19%
√ VP / Director / Manager –
64%
√ Others – 19%
Part of the challenge in fighting these thieves is a lack of overall visibility into √ Small (less than 100
these events. More than one in three retailers (38%) either lack the visibility employees) – 16%
needed to detect these large-scale thefts incidents or don’t have credible √ Mid-sized (between 100 and
data available to forecast these losses. The retailer pays for these crimes 1,000 employees) – 24%
with their lost profitability; however, these losses also filter down to their
√ Large (more than 1,000
consumers in the form of increased commodity prices.
employees) – 60%
Rather than continue to be violated by these different scenarios of shrink,
retailers are reconsidering their LP strategies and determining a new game
plan — one that gives companies more insight into issues that are
jeopardizing profit.
of loss — thieves who made a habit of stealing any merchandise they could Fast Facts
discretely conceal and remove from the store. Based on current business Among the top process
pressures, however, retailers need to expand their spectrum of loss beyond capabilities used to support LP
the bad guys. Instead, today’s LP strategies must address and adopt more strategies are:
sophisticated processes that can improve operational efficiencies and
√ 88% – Centralized collection
visibility, and in the end, recover lost profits.
and storage of transaction
For many companies, this task falls in the hands of their centralized loss data
prevention department, a group often comprised of regional loss prevention √ 73% – Conducting regular
managers who are responsible for activities across several stores. To ensure audits of merchandise safety
that no activity or event is overlooked, successful companies’ LP task forces and security
consist of cross-functional teams, with representation across many lines of
business, such as store operations, sales audit, field marketing, inventory √ 69% – Regular reporting of
store transaction
management, and revenue. According to Aberdeen’s April 2012 report, The
management functions, such
State of Loss Prevention in Retail: Controlling Losses and Maximizing Profits, 53% as store returns, manager
of retailers relied heavily on their cross-functional team to establish, exceptions and overrides,
manage, and execute LP strategies across the enterprise. cash back, refunds, etc.
It is a more balanced approach compared to decentralized teams that
permeated throughout the industry, yet operated ineffectively. In fact, 61%
of companies relied on decentralized in-store LP teams responsible for
managing day-to-day LP processes and training, according to Aberdeen’s
December 2007 report, Real-Time Loss Prevention: Changing the Game in Store
Fraud.
Within the last five years, retailers that successfully augmented these in-
store teams with centralized ones have adopted new LP strategies, training
and executing operations to fight new sources of shrink. This trend will
continue going forward as 48% of companies plan to add such teams this
year. Their success however, is contingent on consistent training and policy
support. For example, 60% of companies already hold district and regional
meeting for LP best practices, and 48% support enterprise-wide training for
internal policies and procedures. Over the next 24 months, another 24% of
corporate teams will host these regional meetings, and 33% plan to extend
training throughout the enterprise.
Currently Planned to
Used Implement
Close circuit television (CCTVs) video
surveillance on POS registers 70% 17%
Mobile audit handheld devices 58% 29%
Business Intelligence exception-based reporting 52% 35%
LP business intelligence tool 46% 38%
CCTV video surveillance with video intelligence
software focused on risk areas 43% 26%
Video intelligence software 36% 32%
EAS analytics 26% 22%
Cloud-based reporting and monitoring solutions 13% 38%
Source: Aberdeen Group, April 2013
As more companies blend smart technologies into the mix, many expect a
significant change in the level of detail they will collect. For example, 58% of
retailers are transitioning to mobile auditing devices, including smart phones
and tablets — a significant increase from 28% usage last year. One reason
for the 30% increase is the strong value proposition connected with
deployment of multi-functional smart devices. By programming devices with
“apps” for customer engagement as well as auditing operations, customer-
RFID tags are also being added to LP strategies. With the ability to deliver
real-time access to information that can enable retailers to make more
strategic decisions, RFID is a viable solution that gives retailers a firm leg up
on the bad guys. Unlike EAS tags, which are passive solutions until they
come in contact with a dedicated reader, RFID tags are embedded with an
active chip that holds characteristics of the merchandise it is attached to, as
well as item movement as each tag is detected by dedicated readers. As
tagged merchandise comes within the vicinity of dedicated readers, product
data is transmitted to a database, alerting retailers to item movement
throughout the supply chain, warehouse, and at store-level, in real-time.
While adoption remains low, interest is growing. Currently, 13% of retailers
use RFID, and another 21% plan to invest in the technology within the next
two years. Similarly, 13% already use RFID on an item-level basis, to
monitor item movement across the enterprise.
These examples illustrate that by exploiting smart technologies, retailers are
able to collect a goldmine of real-time information. This data will become
the foundation needed to uncover their top sources of shrink.
Key Takeaways
Loss may be an expected cost of doing business across the retail industry,
but retailers cannot sit idle and let shrink overrun their profitability. Many
are adopting more intelligent solutions that detect shrink more accurately.
Yet, retailers must remain mindful of the influx of data these innovative
tools create. By adopting reporting solutions that deliver the insight needed
to make better loss prevention decisions, retailers will be better prepared
to fight shrink and protect margins. Following are a few tips that can make
the transition easier:
• Adopt intelligent data collection solutions to gather the
most actionable information possible. With 38% of retailers
lacking the credible data necessary to forecast loss prevention
events at store-level, the need for real-time data is more important
than ever. While traditional measures, such as EAS and CCTV,
remain important weapons within a retailer’s LP arsenal, smart
solutions, including RFID, video surveillance, and mobile solutions,
deliver the real-time information required to stay one step ahead of
sneaky thieves. Among these innovative tools are video surveillance
solutions (already used by 72% of companies), mobile auditing
devices (used by 58% of companies), and RFID. While only 13% of
surveyed retailers currently use RFID and RFID-enabled mobile
devices respectively, a combined 53% of retailers (21% using RFID
and 35% with RFID handhelds) will integrate these into their LP
plans over the next 12 months.
© 2013 Aberdeen Group. Telephone: 617 854 5200
www.aberdeen.com Fax: 617 723 7897
Loss Prevention Analytics: Gaining a New View of Retail Shrink
Page 11
Related Research
Big Data Trends in 2013; February 2013 The State of Loss Prevention in Retail:
Controlling Losses and Maximizing Profits;
A New Retailing Paradigm: Solving Big April 2012
Data to Enhance Real-Time Retailing; June
2012 Real-Time Loss Prevention: Changing the
Game in Store Fraud; December 2007