Retail Loss Prevention is a set of practices employed by retail companies to preserve profit. Deliberate human actions that cause loss to a retail company can be theft, fraud, vandalism, waste, operational errors, miscounts, inaccurate vendor shipments and poor receiving practices – just to name a few. All inevitably impact the profitability of the organisation and are a part of a comprehensive loss prevention initiative. Inadvertent human actions that lead to loss are poorly executed business processes, where employees fail to follow existing policies or procedures. Modern loss prevention strategies strive to focus on the root causes of these losses and deploy norms designed to lessen their impact on the company’s bottom line.
Unravelling the Path of Loss Prevention
Over the last 50 years, the evolution of loss prevention (LP) has been quite extraordinary. As the retail landscape has changed, so has the problem of shrink. With the advent of regional and national chains, it is now difficult to scrutinise all corners of the larger store formats. Furthermore, the need for a larger workforce and complex supply chains has opened new doors to such issues. As a result, retailers have responded to these challenges and created an organised LP department that works with divisions across the enterprise to slow the growth of these losses from both internal and external sources.
Amid today’s leading steps toward Omnichannel retailing, retailers face more complex challenges than ever before. Margins are under attack on many fronts, mainly:
Losses attributed to shoplifting
– Internal theft
– Online fraud
– Organised crime
– Losses associated with supply chains i.e., geographical sourcing, multiple touchpoints etc
What Market Says
According to Global Shrink Index powered by Sensormatic, India’s retail market reported the second-highest shrink rate globally, at 2.13 percent of sales, despite having the lowest average shrinkage sales value (US$ 0.52 billion).
Verticals such as cash & carries, drugstores, fashion and accessories were reported to have the highest shrink rates in the country. In fact, India has a global rank, 2 when it comes to fashion and accessories store shrinkage and 5 in departmental store shrinkage worldwide.
According to Asia – Pacific retail shrinkage reports, India stands at the first place with the highest percentage of 2.12 percent, from which 33.7 percent is contributed by external causes or shoplifting; 20.5 percent for vendor or supplier loss causes; 18 percent for administrative losses and 26.9 percent for internal causes. India’s relatively low modern retail base meant the value of losses was very high as compared to all the countries surveyed.
The LP segment is very vast and unorganised. The sector has variable demands and cannot be simplified by a common step. Restaurants and F&B retailers’ loss situation will be totally different from that of fashion retailers. Similarly, the e-commerce sector has a different set of problems related to the LP. Some of the challenges which are associated with LP are as follows:
Unforeseen Damages – Running an industry absolutely hassle-free can be quite tricky and challenging at times. One needs to play the right cards at the right time to bring out the best of loss prevention techniques.
“As far as restaurants owners are concerned, it is imperative for them to have a stronghold over all restaurant operations. From food loss due to specific seasons and days of the month to inventory damage and more, there are many challenges when it comes to damage control, recurring losses and loss prevention. A brand is successful only when it can foresee the losses that incur. A foodservice industry always sees a multitude of damages- food wastage, inventory shortage and recurring losses,” explains Vikrant Batra, Founder, Cafe Delhi Heights and Nueva.
“Running a business successfully is the ultimate aim and there are three main elements to this – Infrastructure which consists of the right space, equipment and tools; People; and ‘Processes’. By addressing all three components we have been able to considerably reduce our food cost which includes all the losses you enumerate. We believe that we have received most of the possible savings but strive to continue our efforts to further improve our efficiencies and minimise the potential losses,” states Kazem Samandari, Executive Chairman L’Opéra.
People/ Staff Management – Highlighting the issue further, Rohit Narang, CEO, Tossin Pizza adds, “Managing people and keeping an effective supply chain are the two challenges that every restaurant faces today, however, we have associated partners who help us remain insulated from the challenges. We also have a good team and we keep them highly motivated.”
“Retaining employees is extremely important because hiring, training and nurturing employees require a lot of energy and time on the part of the restaurant management,” added Batra.
Speaking of the unpredictability of challenges associated with loss prevention management, Dinesh Arora, CEO, Eastman Colours Restaurant says, “From a motivated employee staff to managing current costs and losses, every damage is a hit for the functioning of the restaurant. From shortage of employees to finding good chefs, from managing months and low footfall business hours to unforeseen taxes, government laws, licenses etc, we need to be ready for it all.”
Adding his bit to the list of woes, Rahul Khanna, CEO, Azure says “The food industry faces a lofty level of competition throughout the year and has a lot of details to perfect. This is a never-ending process right from staff management, staff poaching, fi nding a good replacement, rising costs of manpower due to limited skilled staff in restaurants business to unforeseen losses happening because of changing trends are the components of this industry. One needs to be ready and prepared for all these challenges on every occasion.”
“A brand goes through many challenges associated with damage control every day. From facing employee poaching issues to changing marketing trends to unforeseen business losses, we prepare ourselves for the worst situations possible and learn from each passing day while preparing for the next to come,” adds Umang Tewari, CEO, Big Fish Ventures.
Technology to the Rescue
Technology has a solution for every problem related to retail. With the help of technology, retail engagement has become more experiential, personal and fascinating. Retailers today very much understand the fact that there is a need for efficient LP strategy and it with technology the strategy can be made data-centric which helps in understanding the main sources of profi t-loss.
CCTV Cameras: CCTV cameras are the most common and applicable protocol method used to keep an eye on the LP activities.
“We deploy protocols like CCTV cameras- that track every nook and corner of the restaurant. Apart from this the digital records of the entry and exit of every employee are the other security measures we follow. We also do background checks on our employees, hiring high power security, establishing high protocol cash collecting systems and scheduling security training for our staff are some of the ways how we ensure our team is well-equipped and alert. We have always believed in preventive maintenance with an endeavour to foresee damages and upcoming losses. We have a preventive management plan for everything starting from fixtures to interiors including regular servicing & checks to help us avoid any kind of unforeseen breakdown” adds Batra.
Hi- Tech Security Systems: Installation of the advanced security systems is also a common practice which every brand is doing these days. “We are well equipped with cameras, security guards and a hi-tech security system to monitor the daily happenings in our cafes. With a loyal and vigilant staff , we make sure crimes like theft and burglary are kept at bay. A system driven setup also helps us manage and curb down fi delity issues and prevent them from happening in future too. Establishing right channels for working and monitoring, all avenues from accounts to inventory to daily costs are transparent and under supervision,” elaborates Khanna.
RFID & Audits: “Global count, periodic physical audits, educating the boutique staff , surveillance cameras, RFID tags on products are some of the remedies we deploy as tools for precaution. We also have a reward and recognition programme where front end colleagues are encouraged to set examples of customer service. To check the theft from the trail rooms, we use RFID tags on all of our items and limit the number of product counts to 3 per person at any given point of time,” explains Rajesh Jain, Managing Director and CEO, Lacoste.
“At Cafe Delhi Heights and Nueva, we use software for checking loss prevention errors. The software helps us in providing daily operational costs, also by updating the expenses incurred by the restaurant on a regular basis. A daily P/L account is maintained by our audit team for smooth functioning, we also maintain authorisations and second party approvals from billings and orderings in our software that are likely to help us prevent losses and unforeseen situations” states Batra.
Samandari explains this further saying, “Convincing the kitchen staff to use computers and processes to register their consumption from the warehouse has not been easy and continues to be a tough task. The optimal solution for this issue is the right combination of technology and people.”
“Many a times, we face inconveniences wherein our garments are misplaced or lost. Working on excel sheets and challans is not enough to keep an exact track of things. That is where the role of barcode system kicked in. Herein, each garment has its unique barcode and when any piece of garment exits the premises, automatically this gets registered, entitled to all of the details as to where it has been sent, to whom, and when would it return (if at all). This has immensely helped us set reminders and track garments,” emphasises Masumi Mewawalla, Designer & Founder, Pink Peacock Couture and Emblaze.
Training: Emphasising on the core values of L’Opéra, Samandari says, “Unfortunately, avoiding negatives is also part of our daily lives. We try to overcome these challenges by paying special attention to the quality of our collaborators at the time of recruitment. We continuously train the staff and use technology to monitor sales and inventory. Also, we take the help of surveillance cameras, ERP system, surprise checks with respect to people and plant.”
Contingency Plans: As Khanna puts it: “In today’s global food industry, each brand must have an effective business contingency plan, part of which includes hiring third-party auditing companies if the need arises. From backing up for natural disasters from fire extinguishers to emergency fire exit to critical equipment failure, our contingency plan caters to damages from all fields from employee poaching to changing trends to months of low business.”
Today, loss prevention departments are considered an integral component of a successful business model, requiring global approaches and flexible strategies to meet the dynamic needs of the retail environment. The LP professionals are now embracing the role of a business partner; sharing perspective and cooperation while accepting the challenges of our evolving responsibilities. Retail crime has always carried a significant risk that will require our ongoing attention, however, there is still much more to retail LP than just fighting crime.