Loss prevention is a unique discipline that has changed measurablyin the past forty years. By analyzing this evolution in light of today’s retailrealities and tomorrow’s pending technologies, certain industry trends can beidentified. To put those trends in context, first let’s review what has led upto loss prevention today.
A Short History of Loss Prevention
In the sixties, retailers called the departments that were engagedto impact loss security. Many of thepractitioners in those departments fit the nomenclature of their department indemeanor, behavior, action, and results. There was little communication betweenthe security practitioners and the senior management of the retailer, unless,of course, a major debacle occurred that resulted in legal action taken againstthe store. When that happened, the communication that resulted was very muchnegative in nature.
As losses continued, enlightened practitioners and occasionallytheir enlightened chief financial executives began to understand the value of prevention–a proactive approach versusthe reactionary past. As this concept became more commonly accepted through theseventies, retailers began changing the name of that department to loss prevention. Those in charge of thisfunction began to think of their responsibilities in different terms. Asignificant metamorphosis continued through the eighties and into the nineties.
Loss prevention executives learned to relate what they did to profitimprovement. The bottom line was impacted through measurable reduction inlosses, such as inventory shortage, cash loss, credit fraud, expensemanagement, and the liability lines on the profit and loss statement (generaland workers’ compensation).
As some of the professionals of this emerging function continued todeliver results, they gained recognition and appreciation from their companies’senior management teams. Some of these departments were renamed once again,this time to assets protection, adesignation that implies a broader scope of involvement in the successfulresults of the retailer.
Often, these assets protection teams carried out their mission witha true client-service provider relationship. They made certain their internalretail clients completely understood the role of assets protection, what werethe expectations, and how they were to measure performance. In addition, both assetsprotection and the client learned how to work together to maximize the returnon any capital invested in technological solutions for prevention anddetection.
Today, more than ever, there is a need for increased intelligent andeffective ways to protect assets. Access to data, analysis of that data, andutilizing the results of the analysis to improve productivity and efficienciesand detect potential theft, fraud, and other forms of loss is essential.
Effective supply chain monitoring by loss prevention (still the mostcommonly used name of the profit-enhancement function) will uncover and resolvemany opportunities to impact previously unmeasured loss, from outright productand cargo theft to vendor manipulation and fraud. Sometimes the complexities inmany retailers’ logistics systems can cause inventory misstatements and otherdata integrity issues, which should be detected through effective monitoring.
The brand of any retaileris a critical asset that must be preserved. Erosion of the brand will directlyimpact top-line revenue and eventually (often very quickly) shareholder value.
The employees of the retailer are considered by some to be the mostimportant asset in the company, even more so than the customer. That belief isbased on the premise that the employee represents the brand in the best lightto the customer, provides a great experience for the customer, and thuscontributes to both the top and the bottom lines.
Looking back on the events and the developments that have occurredin the last few years, the current national and international issues, andnumerous evolving technologies, it is interesting to speculate on emergingtrends in loss prevention.
Changes in the Process of Loss Prevention
Employee Selection and Training. There is continued emphasis on centralizing the role of loss prevention.Intelligent strategy development and decisive tactical leadership are bothessential in today’s lean, mean business environments. Ensuring both loss preventionand store operations field personnel are properly trained and effective inpreventing, detecting, and resolving loss is a must.
There will continue to be fewer to do what needs to be done. Selection–thehiring process, testing and background screening–is more critical for successthan ever. There will be more training assessments and follow-up by expertthird-party providers in the future. Utilizing these expert outside resourcesalong with their proven investments in learning technologies will actuallyprotect several expense lines for the retailer, including all of the costsassociated with technology design, development, and deployment, internal help desks,and additional training staff, and measurably impact the bottom line.
In the most recent National Retail Security Survey, published by Dr.Richard Hollinger of the University of Florida (www.soc.ufl.edu/srp.htm), theopinions of the survey respondents reflected that internal theft (dishonestemployees) caused 46 percent of the losses retailers experienced versus 32percent attributed to external theft (shoplifters). If these numbers areanywhere close to an accurate reflection, it begs the question, “what is beingdone about internal theft?” The future must require loss prevention to stand upand be heard about hiring practices, selection procedures, screeningrequirements and compliance, orientation and training, awareness programs,hotline availability, and opinion surveys and follow-ups.
Vendor Compliance. Another process is emerging as an outgrowth of both internalcriminal activity and crisis management. Many retailers have employees of outsidecontractors who need access to stores, distribution centers, informationtechnology centers, and even customers’ homes. From maintenance workers in thestore to computer program developers to furniture and appliance deliverypersonnel, these outside contractors often roam freely and the retailer doesn’treally know who they are.
Furthermore, employees of product vendors help stock shelves, takeinventory, and set up displays. Little is done to monitor their activity ortrack their whereabouts. Third-party providers are emerging who can verify theauthenticity of the vendor/contractor, screen their employees, and provide themwith universally accepted identification…all paid for by the vendor/contractor,not the retailer. But the retailers and their customers are the ultimatebeneficiaries through the increased assurance that the outside employee doesnot pose a criminal threat.
Crisis Management. Since September 11th, crisis management has taken on a new meaningto retailers and loss prevention organizations. Large shopping centers andmalls are terrorist targets according to Department of Homeland Security andFBI sources. The recent sniper events in the Washington, DC, area requiredresponses by retailers that most had never even dreamed of before. The impactfrom the loss of business in certain stores in that market was also felt byother stores within that chain elsewhere in the U.S. because of the nationalnews reports. Some chains dispatched loss prevention personnel to the rooftopsof stores in the affected market area to monitor and report parking lotactivity and to be able to render aid quickly if needed.
Organized Retail Theft. The recognition of the problem of organized retail theft is growingdaily. Read Hayes, Ph.D., CPP, executive director of the Loss PreventionResearch Council, heads up several studies currently underway to provide betterunderstanding of the problem. These studies include flea market research andanalysis, product protective packaging impact on thieves and their fences, itemanalysis for tracking the most commonly stolen products, and further researchinto the offender population.
According to Dr. Hayes, “Losses tend to cluster in relatively fewplaces (hot spots/hot stores) and in relatively few individual products (hotproducts). This clustering allows for more precise assets protection protocols,and, in turn, more cost-effective LP efforts.”
Refund Fraud. Retailers’ profit lines are directly impacted in several ways due torefund fraud: net sales deterioration (gross sales minus refunds = net sales),inventory shortage, gross margin impact, and increased handling expenses. Justas there are several “membership” service providers today in pre-employmentscreening and check authorization adding value for their members in many ways,it makes sense for a membership-type refund authorization provider, through thecollection of refund activity from many retailers in real time, to be able toprovide instant analysis and risk management information regarding theacceptance of the refund by the retailer. Further analysis of this data willprovide intelligence for additional investigation by loss prevention and lawenforcement.
Supply Chain. As stated earlier, the supply chain presents loss prevention with anew frontier. Traditionally, 95 percent of the field loss prevention personnelhave been deployed to the stores with some minimal presence resident in thedistribution centers. The emerging trends show that some retailers have redeployedsome of these field personnel to address organized retail theft and others havebeen redeployed to monitor the supply chain.
Imagine standing on the receiving dock of a distribution center andfiguratively looking upstream at the path the merchandise takes to get to thatDC. That route is loaded with slippage opportunities, from vendor manipulationto organized cargo theft to cross dock pilferage. (See “Securing the SupplyChain Against Terrorism” in the November/December issue of LossPrevention.) Depending on the inventory system, oftentimes thoselosses don’t show up until a physical inventory is taken in a store. By then,of course, it’s far too late to be able to identify and resolve where the lossoccurred.
The Effect of Advancing Technology
Digital CCTV. We have all seen the explosion of digital CCTV and the storage ofthe video on hard drives. It’s just the beginning of the future of CCTV. Moreand more video is being delivered via the Internet as the cost of bandwidthcontinues to drop. Storage capabilities are becoming very cost effective andthe advances in how the information flows to the storage provider are numerous.Third-party storage providers will soon be enhanced with third-party dataanalysts who turn the analyzed data into intelligence for the retailer, whothen directs their own investigators or outsourced investigators to resolve theissue and proceed with prosecution and recovery where and when appropriate.
Other technological developments in the CCTV arena include objecttracking and 360-degree viewing. As these two technologies mature, cost-effectiveapplications will be found in the retail loss prevention marketplace.
Exception Reporting. Either integrated with CCTV or web delivered, or pushed from thehost via intranet, exception reporting is becoming the standard versus theexception. Today, that exception information is generally reported frompoint-of-sale data. In the near future, exception reporting will also come fromthe supply chain. Merchandise shipping and receiving information is rife withdata that can be mined and reported on rules-based logic and patternrecognition.
GPS Tracking. Exactly where were those 100 gross of men’s cotton shirts that werebeing shipped from Hong Kong just in time for an ad when the labor strikes shutdown the ports on the West Coast? GPS technology, sometimes integrated withRFID, will be able in the future to tell us where our merchandise is in realtime, anywhere in the world. GPS cargo and transportation tracking technologyis very inexpensive and very effective today, especially when it is satellitebased.
rms of the technology allow the virtual construction of a“geo-fence.” If the transporter strays outside of the “fence” on the trackingdevice (deviates from the expected route from point A to point B), an alert isinitiated and management and law enforcement can respond in real time.
Access Control. The technology for controlling access to stores and facilities ischanging rapidly as well. Ultra long-range RFID technology is being used by thegovernment and military in identification cards that can be read by readersfrom as far away as 150 feet. The cards have data storage capability and cancontain the digitized photo of the card owner, readable by an image displayunit from a great distance. The card can also store and validate the owner’sfingerprints for immediate positive identification. Retailers are finding moreand more uses for biometrics in their businesses, particularly in accesscontrol.
The Continued Growth of Loss Prevention
Loss prevention has proven to be a dynamic discipline, one that hasrisen in importance in retailers throughout the world. The function isintegrated into senior management levels today, and, predictably, in the boardrooms tomorrow, particularly at the audit committee level.
The head of loss prevention must have the integrity, reliability,and credibility to not only deliver outstanding service to his or her corporateclient, but also be trusted by the highest levels of our country’s governmentand law enforcement officials. For example, in the search for known terroristoperatives, it is quite conceivable that the head of loss prevention could,through the prudent use of data mining and analysis, develop intelligenceassistance specific to a limited small number of suspects without in any way infringingon the privacy rights of 99.99 percent of customers or employees. This servicecan be a significant link between our commercial enterprise and our nation’sefforts at national security. This partnership has already occurred in othercommercial industries and it will occur in retailing…but only through a proven,trusted professional loss prevention function.
The analysis of the current state of loss prevention and theemerging trends leads to one overriding conclusion: Loss preventionprofessionals must continue to grow on both a personal and industry basis tomeet the evolving challenges of their expanding responsibilities. Being as wellversed in business operations and strategic thinking is as important asunderstanding basic loss prevention techniques. Embracing technology andpartnering with both internal and external suppliers will help you push theenvelope both inside your company and as an industry. Actively participating inthe industry, through trade associations and avenues like this magazine, will notonly keep you on the forefront of the evolution, but also allow you tocontribute to the changes.
The current state of loss prevention and the trends that areemerging today are due primarily to those forwarding-thinking professionals ofyesterday who identified problems and pushed for new and better solutions. Thelesson learned is that it is up to each of us to strive to be the trend settersof tomorrow.