Among television business announcers doing stock market play-by-play, tit-for-tat tariffs and the “slowing Chinese economy” are frequent causes of shrill alerts and fretful dissection. Fundamentally, however, there is a bigger China story developing. This is the year that China will push past the US to become the leader in retail sales. According to calculations by market research firm eMarketer, growth of 7.5 percent will put China’s retail economy at $5.6 trillion, exceeding the US by $100 billion based on its 3.3 percent growth projections.
American businesses have taken notice. In a quarterly conference call in January, Starbucks’ CEO Kevin Johnson said the company is “comfortable and confident” with its strategy in China, which remains, despite current softening, the coffee chain’s fastest-growing market. “We continue to play the long game in China,” he said.
It’s not just China, of course. When retailers squint into the future to see where sales growth will come from, eyes often focus on opportunities and operations abroad.
Capitalizing on that vision is complicated, however. It’s the uniform view among global risk analysts that the world is becoming more uncertain, more dangerous. Twenty-two percent of countries, for example, were rated as “high” or “severe” risk in a 2018 guide to political risk, terrorism, and political violence by Aon, an insurance and risk services firm.
Bruce McIndoe, president of WorldAware, a global risk management firm, sees two emerging risk categories that pose a particular risk to the global aspirations of retailers: societal risks and the escalation of friction between nation states. “While we always have had to deal with societal risks, such as citizen unrest in response to labor, human rights, and corruption issues, there are a number of countries where divisive issues are currently fracturing the society,” McIndoe told LP Magazine, specifically citing risks from the rise of nationalism and populism across Europe and Asia as examples. “Similarly, while friction has always existed between nation states, rising globalization has coincided with more frequent instances of friction between countries over geopolitical issues ranging from trade, to domestic security, and beyond.”
Matthew Bradley, regional security director at International SOS + Control Risks, similarly warned of risks to people and operations sparked by civil unrest and political instability. He additionally noted the growing risk from natural disasters and street crime to retail personnel engaged in sourcing and visiting manufacturing hubs, such as in Southeast Asia and Central America. “In many cases, preparing travelers for a high-risk location will mean measures to help keep workers safe from local violent crime,” he said.
Those threats are reflected in the priorities of global loss prevention departments today. “I am concerned about international conflict—and how that impacts our travelers, expats, and basic employee safety,” said Debbie Maples, vice president of global LP and corporate security at Gap. She and others cited a wide range of global threats that are keeping them busy, from the yellow vest protests in France to potential fallout from the Huawei hullabaloo. It is a dynamic risk picture that puts LP squarely at the center of a retailer’s ability to exploit a growing global marketplace.
Case in point: American Eagle’s expansion into Mexico. Benefiting from a forward corporate vision, which provided an abnormally long lead time to plan and the resources necessary to execute, the company’s LP team was central to successful expansion. “Three years before going into Mexico we wrote a white paper on what we were going to need to do in order to do it right and establish a strong LP presence in each of the retail locations,” explained Scott McBride, the retailer’s vice president of global loss prevention, safety, and security. He said LP was “unapologetic about how strong we wanted security to be” and that management saw value in giving them everything they needed.
The “full court press” paid off. A few years in, American Eagle’s twenty stores in Mexico had the best shrink rate in the company, with a loss rate of close to 1 percent of sales. That impressive shrink rate was particularly critical in an environment with a supply chain that was too thin to accommodate average losses. “The low shrink was a huge advantage to the sales side. Because of the small pipeline for products we had, if losses had been 3 to 4 percent, we would not have been able to be in-stock and in-size,” explained McBride. “We were able to be strong when we walked into the country and to maintain it—it’s really a success story for our LP department and for our company to have such strong growth in an emerging market.”
In a 2018 report by KPMG on the top risks facing retail, the firm highlighted the shifting geography of the global retail marketplace. “Although the United States remains the leading force on the global scene, as markets and regions transform with emerging technologies, talent, and capital, a shift from West to East is underway.” China is rising at a “breakneck pace,” says the report. India is ascending.
So it’s noteworthy that—in the firm’s dissection of international risk—one in three of the primary risk drivers identified fall squarely within the security domain. For example, the report warns retailers of threats from social and political instability, terrorist attacks, and delays in cargo delivery due to security considerations. The upshot is obvious: security and global retail are intricately intertwined.
In today’s evolving retail environment, effectively managing international risks doesn’t just prevent incidents; it can make the difference between winning and losing in the global marketplace. And resiliency, a prerequisite for the success of an international retailer, extends far beyond crisis events. The retail companies that succeed going forward need LP’s expertise to enable the business to effectively manage both predictable and catastrophic challenges.
For a sense of which ones are top-of-mind today, LP Magazine spoke with several leading global executives.
The very heart of an LP program—its strategic underpinnings—may need tweaking when applied to retail locations abroad, say experts, and must reflect local risks, standard practices, and available tools. There may be one way of doing things in the US, but investigations, theft prevention, and security posture may all demand a different approach in international store locations.
Executing strategy can also be complicated, both by local cultural issues and technological differences, noted Hank Siemers, vice president of global retail security at Tiffany & Co. “We’ve found a problem of consistency in [point-of-sale] systems across countries. A lot of our global locations are in department stores, and they can have their own way for handling a transaction, so that’s something that can pose a problem and make it hard to develop patterns and conduct exception reporting that a retailer might rely on,” warned Siemers. He added that laws in some countries can require a different handling of loss incidents that involve employees. There are many such differences, explained Siemers, “and they can pose a problem to developing a consistent strategy across countries.”
Language poses an obvious barrier and so can differences in LP terminology. For example, “loss prevention” doesn’t translate as well as “security” when liaising with law enforcement, government officials, and private security firms outside of the US, noted Siemers.
The very core of LP, “inventory shrink,” can also be a point of confusion, according to Kevin Ach, vice president for risk assurance at EPIC Integrated Risk Solutions and formerly senior director of retail loss prevention and safety for Office Depot. “It can mean something completely different in one country from another,” said Ach. For example, damaged products may or may not be included in calculating shrink, he said. “[At Office Depot] we put in a lot of effort to make it so we could compare apples to apples and measure shrink consistently across the world.”
“It’s absolutely a challenge; you can’t just cut and paste,” agreed American Eagle’s Scott McBride, citing cultural variations from country to country and differences in compliance and legal issues, and in standard business practices. He said it took a long time and significant effort to develop an LP program that was both global and had appropriate localization, and that being present in the country was an important impetus. “It was important to go in and actually spend time on the ground, to change the programs, and to have time to leverage the other departments that were doing the same thing—legal, HR, investigations—as well as contractors and vendors,” said McBride. Tiffany & Co.’s Hank Siemers made a similar point and noted the strategic value of getting guidance from local attorneys, local police, and government agencies.
For Debbie Maples at Gap, approaching issues from both micro and macro perspectives has helped spur LP success abroad. She suggested that LP executives need to understand the particulars of how theft prevention is applied locally as well as examining economic pressures from a company’s shrink perspective, and refining in-country strategy while staying in sync with a global philosophy. “It’s all about understanding how a global program relates to local challenges, and applying your global strategy with a local add-on,” she said. With a presence in sixty countries around the world, “it has become normal life for us.”
Finding that balance can be more difficult than it sounds, however. Aligning security with risk in the US is easier than in many places around the globe, where there is often less clarity around threats and crime trends. “We do additional due diligence to learn what is normal for this environment,” said Maples, suggesting that local retail security norms provide a critical baseline from which strategy can then be adjusted. “It creates havoc if you don’t know what the norms are,” she said. “So I think being highly connected to what other retailers are doing to protect product is important-to assess if you are in line or out of scope with what is happening.”
She cited the example of deploying uniformed guards in stores, which may be off-putting in high-end shopping districts in some countries but commonplace—and expected—in others. Going into a country, even if an LP team thinks such visible security seems like overkill, Maples thinks retailers are better off deferring to local norms to start. “I do think it’s important, when going in, to be trusting of the local security standards. Otherwise, the risk will migrate to you,” she said. “It’s easier to pull back and adjust the resources after you’re live.”
Benchmarking also plays a critical role in international operations, Maples suggested, so LP back “in the mother ship” understands how a particular program or technology is impacting shrink when applied in a new environment. It’s not uncommon to experience different results, said Maples, “and it’s important to investigate why solutions aren’t translating and what additional support may be needed to fix it. Benchmarking is really important to drive an effective strategy.”
For LP executives with global supply chain security responsibilities, typical problems are often amplified. The risk of criminal attacks against goods in transport is often the same—or higher—while traditional loss mitigation may be absent. “There are enormous additional challenges in managing supply chain in certain countries,” explained McBride. For example, “As a company doing business in Mexico, you hold 100 percent of the cargo as it moves through the supply chain—you can’t get cargo vendors to take a freight claim.”
He tracks the unwillingness of today’s vendors to accept skin in the game—including brokers, expeditors, and shippers—to the kidnapping industry that boomed in Mexico several years ago. When Mexican officials finally made a concerted effort to stamp out rampant hostage-taking, criminals turned their attention to cargo shipments, where thefts don’t garner the same press attention, public sympathy, and law enforcement scrutiny. A rise in cargo losses ensued and forced companies like American Eagle to buy its own insurance, devise its own cargo security measures, hire its own security escorts, and accept a greater financial burden for cargo losses. “It’s a different business model,” explained McBride.
It’s also another level of risk. In Mexico, cargo thieves are more brazen and violent than their counterparts in the US. It’s less pick up and grab a few boxes at rest stops and more Wild West. McBride said it can be very violent, with criminal gangs chasing vehicles, shooting out tires, and kidnapping drivers and releasing them, naked, dozens of miles from the point of attack. Enhancing theft opportunity is often unforgiving terrain that renders GPS tracking nearly impossible for long stretches. “Over some rural mountain passes you might have zero cell coverage for fifty miles. So where do they set up the ambush? In those spots,” McBride explained.
Although technology has limitations, it’s a critical component of a cargo security strategy, along with route planning, said McBride. His LP team conducts ongoing reviews of technology improvements, such as satellite-based surveillance, to increase as much as possible the visibility of its cargo in transit for quicker alerts if something goes wrong and to limit losses if it does, including kill switches on truck cab engines that they can trigger remotely. They’ve had success, but it’s a never-ending battle, suggested McBride. Each security enhancement ushers in countermeasures by cargo thieves, such as their developing jamming technology to block shipment-enabled GPS devices from communicating with cell towers.
Accepting full responsibility for cargo raises the bar for security, but there are also challenges for LP in regions where it’s standard to have little direct control. At Gap, for example, supply chain security in Europe is fairly in sync with the company’s US strategy, but “in Asia it’s not uncommon for retailers to outsource more of supply chain strategy,” said Maples. “So it’s critical to create and develop those relationships, and to get your own best practices inserted into third-party programs, and to learn how you can provide support from afar,” she said. “And to then inspect what you expect.”
As a luxury retailer with a reputation for quality, Tiffany & Co. is a desirable target of criminals across the globe. Protecting the iconic brand requires robust store protection and an advanced LP department; the company has, for example, a worldwide central monitoring station from which it can monitor every location.
But differences in local laws and regulations are a complicating factor. They often place restrictions on a retailer’s advanced security systems, particularly as it relates to surveillance and privacy. Tiffany & Co.’s monitoring station, for example, can’t watch surveillance video in many European locations due to the General Data Protection Regulation (GDPR) established in 2016, noted Hank Siemers. Italy is a case in point, where video cannot be used as an investigative tool and can only be used to protect employees. As an internal theft prevention tool, then, all that great video is useless.
As such, success—like that experienced by Tiffany & Co.’s security team—often hinges on the ability to nimbly navigate a world of unique obstacles. “When opening a new store, you have to know what you’re going to be able to do with your system to know if it’s viable,” advised Siemers, adding that even geopolitical issues sometimes filter into the installation of security systems. A camera manufactured in Israel-that you’ve come to rely on-may not be allowed in a store in Dubai, for example.
The peculiarity of Italian surveillance law is a prime example, but it’s just one of many differences that necessitate a country-by-country approach to store security, Siemers explained. In China, local law enforcement gets very involved in security system installation, even mandating additional cameras for their own monitoring and high-quality facial captures of everyone who comes and goes in a luxury store. In many countries in the Middle East, law enforcement similarly demands an additional level of up-front consultation, as well as mandating longer video retention times of ninety days. “Prior to any lease negotiation, we’ll do a full risk assessment to identify all such issues, including meeting with local police departments,” said Siemers. “Vendors are also very important and a valuable resource in this regard, and we typically get them very involved.”
Top LP leaders uniformly cited implications from newly enacted and stringent European data protection laws, noting they have required significant attention and review. “Expectations for protecting data is super high, and it’s critical that LP organizations understand how data can and can’t flow, how it must be maintained locally, the ramifications for conducting investigations, and to have appropriate consultations with the legal team,” advised Maples. “It’s also important to understand the financial impact for violations. The cost can be crippling if you don’t get it right.”
McBride also cited the value of collaboration with corporate legal and compliance teams, labor attorneys, and with local law firms for their assistance in conducting associate training. “That helps us understand back here what we can and can’t do, and how actual policies might need to change, so we can devise plans that allow us to keep control of the business,” said McBride. He noted that not every legal development makes the same splash as the European Union’s GDPR. “Sometimes it’s a lot more subtle, so it’s important not to be complacent [about regulations] and to revisit with your team periodically, so you can do the necessary localization.”
Just as local laws may demand that stores outside the US do things differently, local customs may dictate a different way of getting things done. To McBride, the biggest adjustment in managing LP internationally has been to the speed of business. “The pace at which work gets done is completely different from the US, even in Canada,” he said. “So issues like how long it might take to get a contract finalized is almost always longer, and you have to be understanding and respectful of that—although it can drive you a little nuts.”
Maples believes that respecting local norms, especially in the ways that people communicate, is important to integrate into one’s leadership style. “One size doesn’t fit all, everything from greetings to the commands you give that may work in one country may not work in another. From a culture standpoint, asking a lot of questions, listening to learn, and doing your homework on cultural standards is all really important,” said Maples. “If you don’t, you won’t be able to persuade people—and you won’t recognize when you’re getting a nod of, ‘sure, we’ll do it,’ when they mean something else.” She added that respect should extend to LP’s review of local policies. “You should be asking why employee policies are the way they are, instead of making an assumption and insisting reflexively on change,” she said. “Know what your values are and the guardrails that keep you to company standards but allow for differences where possible.”
Flexibility is key to success, advised Siemers. “You have to be careful when you have security people from outside going into those other environments that they understand things from a local perspective,” he said. “You can’t go in thinking ‘this works in the US’ because it might not work there. You have to work through things, understand what is important to them, be willing to learn from them, and share what you know—and to be flexible in how you handle issues that arise.”
For Tiffany & Co., one of those issues is enhanced risk from brazen and violent attacks on stores in Europe. With less-defined borders than in many other parts of the world, violent criminals move freely, traveling from Eastern Europe to attack a store in Amsterdam and then quickly escaping out of the country, for example. “From a luxury brand perspective, it’s something we’ve had to be aware of, to monitor, and it requires making good use of our communications network with local officials, law enforcement, and government agencies,” Siemers explained. “Attacks can be very violent, smashing a car into a store at 11 in the morning, or attacking an armored car transport. And in many cases, these are ex-military people, who are working on that level of tactical expertise. It can be very dangerous and puts people and high-end shipments at risk.”
Cultural differences can also impact store design, which impacts LP and store operations. McBride noted that fitting rooms are absent from American Eagle stores in some countries in the Middle East in deference to local attitudes toward females changing clothes in a place other than their home. He said security training for travelers also needs to be designed to alert workers to cultural differences that may have ramifications on their safety, including attitudes toward the LGBTQ community and the overt wearing of religious symbols.
More retailers may need to address such travel safety issues, suggests data from Business Resilience Trends Watch 2019, a survey by International SOS and Ipsos MORI. It found that only 27 percent of business travel risk programs include considerations specific to female travelers. Only 17 percent of travel risk programs cover LGBTQ considerations.
Finally, Kevin Ach suggested that his experience with Office Depot taught him the value of treating culture as a two-way street. “You need to put boots on the ground to find the right local people, solid leaders that are part of that culture,” said Ach. “And then also bringing them into the US and exposing them to your culture and letting them learn from you.”
For LP leaders who face the prospect of expanding into a new region internationally, the question of how to find people locally who can lead the effort has no easy answer. There are no shortcuts to establishing a program where you’ve never had a presence, and recruiting and retaining the talent to do it, say LP leaders. “It’s one of the most difficult things to do,” said Siemers, who noted that a good human resources department helps, and so does luck, a good benefits package, and patience. He noted it once took eighteen months to find the right fit for regional security manager position in the UK.
“Not every country is as mature in the LP world as the US, and so sometimes very few people have the experience you’d want,” explained McBride. And often, he says, they know it. That can put pressure on budgets and make top talent prime targets for poaching by other retailers. “We’ve paid when we’ve needed to, and we’ve also, in places, been able to grow our own talent internally,” said McBride. “By finding people with a propensity for LP among store operations and spending time with them, giving them special projects, and then being sure to interview them when we have an opening.” He said that model has served them well in Mexico, where one LP leader is a former store manager. “She didn’t have an LP background, but we taught her that, and we’re able to leverage her other skills and things she does really well for LP.”
Maples echoed the necessity of growing talent in less-mature LP environments. “In some countries LP is still very young, and there are not a lot of professionals who are well trained. You need to have a talent strategy and to invest in people to grow them,” she said. When getting started in a country, Maples said she has turned successfully to her network of global crisis management advisors for help. “Going on people’s reputation and recommendations is much better than strictly cold calling in a country, so developing that network of people, which can include other retailers, is really important to create a team that can deliver a quality program.” Although competition for talent is unavoidable, Maples said it’s important to be respectful of talent at other retailers, and to not use one’s position in a market to pick over talent at those who are still trying to build a program.
Because finding talent is difficult, retaining strong performers internationally takes on added significance, said Maples. Their success was hard-fought, she said, but came eventually with the help of a strong retention strategy. “You have to create a reason why people will stay for four to five years and to let them grow a career and reputation,” she said.
It’s indicative of just how hard LP talent wars are fought internationally that Maples counts her ability to exceed average retention times as among her top successes. In Asia, where two-year tenures are commonplace, LP turnover at Gap is significantly better than average, including a majority of staff that has been there longer than the norm for the region. “It’s been helped by the fact that we have developed a succession path for people that lets them grow,” said Maples. “I’m proud of the fact that we went into Asia with very entry-level positions, and we’ve been able to grow those people into more senior leadership roles.” Additionally, when senior leaders leave—as people eventually do—the LP team has been able to include them within their regional networks that it relies upon to be effective. “We’ve been able to keep people for well beyond the traditionally normal time period, and then we’ve kept strong, healthy relationships with them,” said Maples.
A company’s brand—as a percentage of its market value—continues to grow; and, unlike other threats, risks to company reputation is not something it can insure against. And, as difficult as protecting a company’s image is domestically, it becomes even more challenging when trying to do so in far-flung places on the globe.
Consistency is a critical aspect of maintaining a retailer’s image, but even brand protection may need to bend to local customs. Tiffany & Co. relies heavily on its luxury image, for example, but exactly what “luxury” is varies around the world, so LP operations adjust accordingly, according to Siemers. “We work with our management team and marketing so that we’re supporting them in delivering the experience that customers want and what is expected in that luxury environment,” he said. In Europe, for example, that means security officers greet customers as they enter, something they don’t do in Japan. Such differences are detailed in security training videos that Tiffany & Co.’s security team specifically tailors for different parts of the world. That way, contract security officers in Tiffany & Co. stores have a clear understanding of what is expected of them, said Siemers.
Maples observes a similar imperative with respect to company values. “Integrity, open-door, zero discrimination, those are values we consistently message all around the world,” said Maples, noting the importance of working with company legal teams and human resources in that effort. “In leadership forums for new leaders we say, ‘This is what we believe in, and this is how we present ourselves in our market,’ but we also make it digestible for the local audience. Our values translate all around the world, but some matters of execution might be different in some environments.”
As noted at the outset, employee safety sits atop most LP leaders’ list of international priorities and as a cause for concern. Disease outbreak, terrorist activity, worker uprisings—LP leaders regular contend with myriad real and potential risks to workers around the globe.
Are retailers prepared to meet those risks? According to Matthew P. Branigan, CEO of Watermark Risk Management International, “levels of preparedness vary widely.” A typical blind spot that his firm sees is the failure of companies to fully understand the complexity of security in an international context and to appreciate the full universe of threats. “Many companies inventory threats and prepare to mitigate them, never realizing internal biases may prevent them from identifying all or even most of their critical threats,” said Branigan. “There needs to be greater awareness of the need to prepare to respond to any threat, or any incident, at any time—by developing a preparedness and response program that is ‘threat agnostic.'”
With Gap’s extensive global footprint, enabling safe travel is a top priority for Debbie Maples. She noted some of the questions that she thinks LP departments need to ask: “How do we protect them? How do we meet our duty of care? How do we make sure people have a grasp of what the concerns are?”
While Gap has a particularly mature travel safety program, it’s an area in which she sees, from her position on the Retail Industry Leader Association’s advisory council, that the industry still has room for improvement. But still-maturing programs have new advocates on their side, Maples said: traveling employees themselves. Today’s workers have started to be more proactive about their own safety and increasingly interested in learning about the risks they face abroad, she said.
Global risk information is critical, added Siemers, for both intelligence and to adjust security as needed, as well as understanding when threats are being embellished. Also critical are relationships with global partners that can provide assistance to employees in a medical emergency, an evacuation, and other emergencies, he said. His team focuses extensively on gathering and analyzing risk information and automatically generating relevant safety and health information to traveling employees. He even flew out to Korea to meet with US embassy representatives at the height of the Twitter war between President Trump and North Korea’s “Little Rocket Man” to get a realistic understanding of the nature of the threat.
Risk analysis needs to be dynamic to be effective, added International SOS’s Matthew Bradley. He suggested that a country’s risk level isn’t stagnant and may be drastically different in the weeks following an election, for example. “It’s not just where employees are traveling that’s important—but also when,” he said. Bradley added that mobile phone apps designed for use by traveling employees provide a critical avenue for delivering safety information, providing updates, issuing alerts, and facilitating safety check-ins. “Driving all travel risk management from the same app is the way the solution is going today,” he said.
On most any day, American Eagle will have at least twenty employees traveling to remote parts of the globe, as they look for chances to enhance global operations or scout out emerging garment factories. McBride said that it is the top responsibility of the LP team to know exactly where those employees are and to help keep them safe, making those new business opportunities possible. “We work to stay ahead, studying emerging markets to have a pulse on what the geopolitical risks are, what the societal risks are, and what employees need to know to travel safely to those countries.” Often, that means aligning security with business contingencies. If a trade war with China escalates and pushes manufacturing elsewhere, for example, where is it likely to go? “We’re constantly networking within the organization and keeping up with sourcing teams,” said McBride. “So we know that if something goes down where the volume will move and where people will be traveling to.”
Although globalization has leveled off in recent years, as retailers focus on improving existing operations and e-commerce, operating outside one’s home country is commonplace. Among the 250 top retailers, 66.8 percent have foreign operations, which account for 23 percent of total retail revenue on average, according to a report by Deloitte, Global Powers of Retailing 2018. Among the eighty retailers from the US in the top 250, 59 percent have stores abroad. On average, they are in more than nine different countries. Whether it’s protecting company personnel or addressing any of the other challenges described above, LP is clearly on the front lines of enabling global opportunity. Indeed, as retailers scramble to capitalize on globalization, the ability of LP teams to help their company navigate risks has been proving to be a bottom-line asset.