Loss Prevention in the New Millennium

Dave Lunn

Loss Prevention magazine launched its first issue in the fall of 2001. I had the good fortune to contribute to that edition and author the Industry News column continuously until retiring in 2015. Given this is the 15th anniversary of the magazine, we thought that the readership would enjoy a retrospective look at a few of the major world events, notable retail trends, and technological advancements influencing the retail security industry chronicled in these pages since the turn of the new millennium.

World Events

Global Economic Issues. The dot-com era came to an end in 2000, and the stock market crashed. Interest rates were 6.5 percent, and inflation exceeded 3 percent. The economic situation worsened over the next two years, causing retail theft to rise and comparable store sales growth to fall. By the time Loss Prevention magazine first published, the US was in the beginning stages of a recession. Commerce improved markedly between 2003 and 2006, fueled by business tax cuts, lower unemployment, and consumer and military spending.

By mid-2008, insolvency in the financial industry, a breathtaking drop in housing values and stock prices, and the equally breathtaking rise in unemployment frightened the populace and caused severe demand destruction for retail merchandise and other manufactured goods. Problems in the US quickly spread to the rest of the world. This was the beginning of a long, slow decline in wages and purchasing power that continues to this day.

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Terrorism. The 9/11 attacks and the subsequent War on Terror caused the retail security industry to address the issue of potential attacks in and around stores and malls. In response, the International Council of Shopping Centers held a series of anti-terrorism seminars that included training previously reserved for Israeli police and the US military. While retail security practitioners continue to spend most of their time protecting assets and preventing losses, they must devote more resources toward the safety of customers and employees—a trend that will only get more important over time.

Changing Retail Landscape. The 2002 recession caused a violent and long-lived retail contraction, causing a number of store closures, bankruptcies, and mergers. Most notable were Kmart’s Chapter 11 bankruptcy filing and the merger between The May Department Store Co. and Federated Department stores, both occurring in the first quarter of 2002. Retail Forward Inc. predicted an extra $1 billion in shoplifting losses in 2002 alone.

The great recession of 2008 forced consumers to “trade down” from their normal shopping venues in a search for better value, deep discounts, or every-day low pricing. Thanks to the burst of the housing bubble and the precipitous drop in the stock market, consumers had far less disposable income. Comparable sales and store counts began to contract in a broad spectrum of regular-price vertical markets. For a few years, the off-price, discount and dollar stores vertical markets benefitted from the shift, resulting in more new stores, a broadening of product mix, and positive financial results. Unfortunately, the economic slowdown dragged on for such a long time that by 2014, even deep value chains like Rent-A-Center and Family Dollar reported revenue decreases and store closings in the US market. The situation has yet to measurably improve.

Internet Power. Around 2003, retailers began to expand the design, construction, and operation of e-commerce sites. Since then, Internet sales growth rates have dwarfed those of brick and mortar stores. Omni-channel retailing is arguably the biggest game changer in the retail industry over the last fifteen years. Amazon’s stock market value has now surpassed Walmart’s, and its revenue has grown from zero in 1996 to over $107 billion in 2015.

The growing use of the Internet has given rise to cyber crime. Over the last fifteen years, several retailers have experienced large-scale hacks of their customer databases. In 2005, online transaction fraud reached a critical mass—accounting for loss rates of about 1 percent of sales.

Process Changes Stimulated by Technology

Data Mining, Reporting, and Management. The magazine’s premiere issue featured a story about Lowe’s implementation of an Intranet-based system for managing loss prevention, safety, and hazardous materials compliance. This was the first of many such positive case studies. Since then, computer-based data management systems have become indispensable to security and non-security professionals in every corner of retail. In my opinion, these systems have been the most important diagnostic tool added to the asset protection arsenal in the last fifteen years.

Hiring Practices. In 2003, Albertson’s supermarket announced that it was going to deploy a comprehensive, web-based human resources management system, with a goal of automating all human resources data. Today, virtually all multi-unit retail chains employ these systems in some form or another. Background screening activities have become simpler and less costly, but much more comprehensive as a result.

Pervasive Use of Video Surveillance. Around 2004, taking a cue from the UK, large US cities such as Los Angeles, Chicago, New Orleans, and Washington, DC, began to deploy state-of-the-art, police-monitored video systems with cameras trained on city streets. These systems are now ubiquitous, inside and outside of retail. Advances in digital camera design and recording technology and the proliferation of WiFi and cellular communications gives anyone the where-with-all to record and upload virtually any image or video stream using a smartphone.

Mobile Point-of-Sale. In 2001, mobile payments were a vision, not yet a reality. In 2015, about half of all online purchases made on Black Friday were with mobile devices. That year, holiday online sales exceeded $600 billion. Unfortunately, customer convenience has given rise to an increase in fraud. Experts estimated that up to 25 percent of these transactions could potentially be fraudulent. According to a report by Javelin Strategy & Research, card-not-present fraud, which includes online transactions, is expected to be nearly four times greater than point-of-sale card fraud by 2018.

Identifying and Tracking Inventory. My vote for the next important amalgamation of technology is real-time location systems (RTLS). In layman’s terms, it is a combination of RFID, small-scale global positioning (GPS), and tracking. Over the past five years, a few retail security equipment manufacturers have developed RTLS systems to identify, track, and protect merchandise; to manage specific safety and operational issues; and to take advantage of merchandise marketing opportunities. One well-known department store has been using RTLS for about four years to locate, track, and manage the movement of expensive handbags. Another has used it for display compliance in its shoe department. The key drivers of the future growth of RTLS systems will be the proliferation of the cloud and the Internet of things (IoT). The cloud has simplified data storage and connectivity issues and made everything much more affordable and less complex. IoT has built-in intelligence, communications, and tracking capabilities that should lower the cost of providing RTLS by the eventual elimination of a separate tag.

The Cost of Cash

Ineffective strategies for processing and managing cash could be eating into retailers’ revenues according to the findings of a brand new survey conducted with senior loss prevention, operations, and finance professionals across the US and Europe. The research, conducted by cash management solutions provider Tellermate, suggests that the average major retailer could be spending up to $5.9 million per year on inefficient and under-optimized cash management processes.

The findings may come as a shock to many businesses that have actively shifted focus away from cash management and toward contactless and mobile payments in recent years. Implementing contactless readers, Apple and Android pay technology, and self-service kiosks has required big investments from retailers, restaurateurs, and banks alike. But the decision by many to neglect cash management in favor of re-allocating resources toward more modern methods of payment could be both premature and ill-advised as cash continues to play a big role for global businesses.

More than half of those businesses surveyed (53 percent) in The Tellermate Cost of Cash Survey said that the majority of their businesses’ takings were still in cash. And while this does indicate that cashless transactions have increased in frequency over recent years, it’s important to note that cash is still the primary method of payment globally, yet one that businesses are quick to overlook.

From the point of payment to the process and banking, cash is a big expense for businesses. It incurs a cost every time it is counted, reconciled, or moved—and especially when it cannot be accounted for through malicious or non-malicious loss or shrink.
And when the processes for managing this cash are stagnant, or under-optimized, the result is a function that “costs” a business in terms of time, money, and resources.

Cash Loss

The survey highlights that cash loss is a big concern for global businesses, with 70 percent of respondents admitting that addressing cash loss was a strategic priority for the next twelve months.

Of this cash loss, 80 percent said that their losses occurred at the point of sale (POS), suggesting that respondents were aware that the majority of their cash loss occurs largely at the hands of cashiers. But when asked whether this cash loss was a product of internal theft or human error, the jury was split: 37 percent believed that their cash loss was deliberate, while 34 percent said it was accidental. A further 29 percent said it was probably a mixture of both.

The survey carried out between spring and summer of 2016 also highlighted that less than a tenth of retailers’ losses required a full investigation according to those polled, while 26 percent said there was always a full investigation. This finding suggests two schools of thought: the zero-tolerance approach and those who only investigate major losses.

Another critical finding, however, was that only 23 percent of businesses perform spot check. This lack of due diligence opens up big windows of opportunity for malicious cash loss and poor cash handling to go under the radar.

Time Is Money

The average cash loss, the survey suggests, takes one to two hours to investigate, but 20 percent of respondents said it took more than a whole day and up to a week on average. Plus, it is not only loss prevention that feels the fallout from this; such investigations also eat into the time of operations, finance, and human resources functions, according to the respondents.

When asked about whether they were confident that all cash management tasks were being performed to a satisfactory standard in their stores, 53 percent answered in the affirmative, while 26 percent said the opposite and were not confident at all. The rest, predictably, were on the fence.

Of the operations teams that were surveyed, 85 percent said that improving store efficiency was a key priority for the next twelve months. And when asked about their key challenges specifically relating to the cash in their stores, the majority concluded that reducing instances of cash loss was the biggest challenge they face.

Perhaps those in finance have a greater understanding of just how much businesses spend on managing their cash. Of finance executives surveyed, 58 percent agreed that reducing the cost of processing cash was a key priority for the next twelve months.

Move Toward Cash Management Technology

With the cash management function still largely consisting of inefficient manual tasks, such as reconciling cash drawers, setting start-of-day banks or processing change deliveries, many businesses are now realizing that adopting cash management technologies that can automate these labor-intensive processes is often a surefire way to streamline operations and generate efficiencies.

In fact, 85 percent of the businesses polled were looking to invest in cash management technologies in the near future, a factor that may have been influenced in the US by the recent hikes in minimum wage across a number of states.

Those companies polled may indeed be looking to use greater back-office technology to count and reconcile cash, enabling them to eliminate those labor hours “wasted” on inefficient activities and in turn slash their labor costs.

US versus UK

But not everyone is in consensus around the effectiveness of cash management technology. The survey revealed some interesting differences between the UK, Europe, and the US when it came to cash management.

For example, the UK is more convinced by the effectiveness of cash management technologies than their North American or EU counterparts.

Respondents in the UK said that getting real-time visibility of their cash was their biggest challenge. However, in the US and EU, streamlining cash management processes for better operational efficiency was more important.

This could indicate that UK retailers have already streamlined their cash management through the early adoption of cash management technology and are continuing to innovate in their function—with real-time visibility of cash being the next step toward ensuring that every penny taken makes it to the balance sheet.

Another noticeable difference was the fact that in the UK, the majority of respondents believed that most of their cash loss was unintentional, whereas

Dave Lunn
Dave Lunn

the North American majority answered that it was intentional.

This divergence of opinion could be indicative of the fact that US companies seem to employ more zero-tolerance policies, with the majority (29 percent) saying that all cash loss incidents require a full investigation. In the UK, loss is seen as more nuanced and could be identified as more of a compliance issue or process failure than straightforward theft at the POS.

Dave Lunn, global director at Tellermate, said, “Cash continues to pose a big expense for businesses, and it will continue to do so for many years to come. The costs associated with processing, counting, reconciling, banking, and even transporting cash all add up. But the greatest cost comes not from any of these elements individually, but from inefficiencies across each and every aspect of the cash management process.

“Even when there is no hard cost involved, manual cash management tasks such as counting cash still take up valuable labor hours, which ultimately results in a cost. Retailers who automate these manual cash management tasks often see huge time savings, and when these time savings are converted into decreased labor hours or more staff deployed on revenue generating activities, the return on investment can be great.”

Cash loss is no longer the sole preserve of the LP manager, but many other functions of the business, as there is now a need for greater transparency and accountability as businesses strive to drive down costs.

“Tying people’s time up with cash management detracts from the customer experience and takes employees’ focus away from revenue generating activities,” Lunn continued. “As people are a business’s greatest—and most expensive—asset, they need to be more customer focused, not less. Today’s retail is all about selling more and losing less and the most effective way of achieving this simple equation.”

To receive a copy of the survey from cash management specialists Tellermate, go to tellermate.com/cost-of-cash to register for a copy.

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