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To win the retail game, inventory losses are not an option

As overseas entrants pour into the Aussie retail space they are bringing sophisticated revenue protection and loss prevention measures with them. With tough economic conditions already squeezing margins, how can locals keep up?

Recent years have seen the Australian retail landscape get even more crowded, across a range of categories. The garment trade has welcomed Uniqlo, Topshop, Zara and H&M. Sephora has entered the beauty space, Kaufland has joined fellow German supermarket disrupter Aldi, and on top of all this, Amazon has arrived.

Worldwide, as wages growth slows and consumer demand weakens in developed countries, retailers are looking seriously at loss prevention as a way of staying profitable. Many have already taken the available steps around supplier relationships, sourcing, staffing costs and automation and have few other levers left to pull.

Entry to the Australian market is often accompanied by aggressive discounting as new entrants rush to grab market share and gain a foothold in a new country. In an already hyper-competitive retail sector and a weakening economy, this makes it especially difficult for existing players to grow their top line revenues.

Some of these entrants bring with them loss prevention measures that are well ahead of current industry practice in Australia. Some overseas supermarkets are staying on top of inventory and self-checkout abuse by scanning customer receipts on exiting a store. This allows them to form long-term strategies informed by store-specific data about their inventory, as well as preventing customers from leaving with the wrong goods.

Other entrants have security measures in their warehouse and distribution centres that go far beyond what has previously been seen in Australia. Security at one distribution centre for an overseas retailer that I’ve visited is comparable to what you’d find in an international airport. With more than 35 percent of retail theft being attributable to staff and suppliers, preventing losses in the supply chain is an important piece of the overall shrinkage puzzle.

Retailers who opened the front of their stores in the early years of this decade are reconsidering that decision. While the reasoning might have been sound at the time, the profitability of this move has plateaued while losses have increased.

In a booming economy, opening the storefront to attract cashed-up customers made sense. It might have increased losses, but the top line growth was worth it. But in our current environment, having an open storefront without entry and exit systems to prevent theft places retailers at a competitive disadvantage when it comes to curtailing losses.

Among the world’s very largest retailers, those who have not previously gated entrances and exits are in the process of installing gates. When the largest retailers are making this move, everybody should be paying attention. Habitual thieves who previously targeted major chains that are sharpening their loss prevention efforts are not going to stop stealing. They are going to move to places where they are less likely to be caught.

The recipe for success in loss prevention is taking a holistic approach. Rather than implementing loss prevention measures piecemeal and hoping for the best, it’s important to look at where losses are occurring, who is responsible and how they can be addressed in a systematic way.

Information and monitoring are the cornerstone of effective loss prevention. The more information retailers have about exactly how losses are occurring the better placed they are to make decisions about prevention.

A comprehensive study of 9,000 retailers found that across Australia and New Zealand, retail crime cost more than $3.3 billion in 2018. The same study identified that customer theft accounts for just over half – 57 percent, with employees and people within the supply chain accounting for another 35 percent.

Effective loss prevention strategies must target both these areas.

Entrance and exit gates are the beginning. Modern systems include network-enabled gates that manage customer movements so people can only exit the store through open checkouts. More comprehensive solutions involve deploying video monitoring systems that can recognise and flag aberrant customer behaviour at the checkout in real time so that theft can be prevented before it takes place.

In some categories like electronics and garments, specialised tags, bag audits and ink bombs should be deployed.

Back-of-house measures should target areas where goods are handled, as well as entry and exit points for the store or distribution facility. Attention should be paid to the entire supply chain. Closed transport containers and pallet passages can even help retailers ensure they prevent theft that is occurring before the goods arrive at the retail outlet.

Hardware that helps enable theft – like trolleys with undercarriages – should be upgraded. It’s also worth looking at losses of hardware itself and considering baskets and trolleys with tracking mechanisms that can provide recovery options.

Finally, loss prevention systems themselves must be audited and fine-tuned for maximum impact. Aim for a feedback loop where you use the information about losses, detection, customer/staff behaviour patterns and cost savings to make sure your losses are as low as they can possibly be. While your strategy might make perfect sense on paper, it’s important to benchmark against measurable and realistic targets to make sure it is working.

In a world where thieves are in a cat-and-mouse game with retailers, a set-and-forget mindset can quickly become a liability – especially as new entrants and home-grown competitors are doing everything they can to stay ahead of the game.

By Craig Padoa is Managing Director of Wanzl Australia.

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