Long after masks and gloves have been put away, when crowded stores are again a welcome sight and outdoor queues, floor tape, and one-way aisles are just a memory, once the nation has worked its way through all its reopening phases and every store that can has since reopened, what, if anything, will be different?
It would be nice to think the industry could pick back up where it was before, to simply call a mulligan and start 2020 over again, but that is unlikely. Crises tend to accelerate trends, sharpen divides, focus strategies, and reduce redundancies, and the retail industry—and LP by extension—can expect to feel all these effects.
The retail industry is astonishingly resilient. It has weathered many a major disaster in the past, and the US consumer will, once again, rise to be the driving force behind the US economic engine. But just as surely as it will return to prominence, retail will be reshaped.
Exactly how, of course, is a matter of some guesswork, noted Karl Langhorst, CPP, CFI, LPC, an asset protection executive and adjunct criminal justice professor at the University of Cincinnati. “I believe that the biggest permanent change COVID-19 will have on all aspects of the loss prevention industry will not be from a policy perspective. Rather, the biggest lasting change will be from a cognitive perspective,” he said. “Loss prevention executives and their team members will need to fully embrace and promote a flexible, analytical, and innovative spirit like never before in order for their survival and that of the organizations they serve.”
More broadly, there seems to be some level of consensus around the idea that the nature of consumerism could be forever altered. “Millions of people who had previously avoided going online to order goods, either out of traditional shopping habits or because they weren’t completely comfortable with how it all works, are now experiencing it and getting comfortable with it. And they’re probably learning to like the convenience of it,” explained Bruce McIndoe, president and founder at WorldAware, a risk management company that counts several of the industry’s biggest names as clients. “This is going to permanently change the nature of retail. It’s changing systems. It’s not a one-and-done event.”
It’s a widely held view. Consensus among analysts is for a rebound by the end of the year that will further separate healthy operations from others—knocking out weak shopping malls and merchants—and push sales online. In an interview with LP Magazine, Kimberly Sutherland, vice president of fraud and identity management strategy for LexisNexis Risk Solutions, noted that increasing e-commerce shopping was already underway, and that shelter-in-place actions and social distancing acted as an accelerant. On a virtual tour for his new book, Richard Cordray, the first director of the Consumer Financial Protection Bureau, suggested consumers will be permanently transformed. “It will accelerate the move to online shopping and away from physical locations,” he said.
Analysts do not predict a collapse in physical retail, but they are predicting further contraction: the anticipated rebound year is long gone. The first few months of 2020 saw more store openings than closings, but that is a distant memory, and the number of closures could reach 15,000 by year’s end, easily surpassing last year’s brutal tally of roughly 9,500. Sales soared at general merchandise retailers and food sellers. Costco Wholesale reported a 12.1 percent rise in March same-store sales, for example, and Walmart added more than 100,000 new hires in three weeks to meet rising demand. Nonessential retail segments, however, suffered mightily. Pent-up demand might put a dent in lost sales, but it is not likely to erase them.
This Christmas season will be the most important ever for many retailers, making the difference between surviving or not, and most all retailers will be cutting expenses to the bare bones to better their odds. And that could last for some time. Consider this ominous headline from the World Economic Forum on its forecast of the economic recovery from COVID-19: “2023 Should Be Grand.”
Through all the economic darkness and human tragedy, many retail and loss prevention personnel performed heroically during the crisis. Stores that could stay open provided an essential lifeline to individuals and communities. Manufacturing facilities were repurposed to meet demands for face masks and hand sanitizer. Teams managed supply as well as could be expected to keep stores stocked and minimize public panic. Many LP leaders shared tales of valor, and personnel earned praise from store leadership.
The genuine love and compassion that employees showed for their teammates and customers will be a legacy of the pandemic, said John Doggette, LPC, director of LP merchandise shrink solutions and analytics at Lowe’s, in explaining actions he will remember most: “Teams inexperienced in dealing with national crisis stepping forward and helping store leaders lead their teams. Leaders coaching and leading remotely, ensuring their teams are mentally and physically healthy and learning how to adjust operations. Finding ways to serve the community, its leaders, first responders, and medical professionals by donating supplies and food.”
The days ahead, while not carrying the same weight of life and death, will still be fraught. LP teams passed the initial test, but many more challenges lie ahead. LP has faced this test before—new challenges, greater risk, fewer resources—and the COVID-19 aftermath will be no different.
A permanent shift in consumer behavior is just one impact that retail and LP leaders should anticipate. From fulfillment flexibility, to theft prevention strategies, to lessons in employee tracking, COVID-19 is expected to have an enduring legacy on retail and loss prevention in a variety of areas.
Crime
It’s hard to find an analyst who doesn’t expect the temporary closure of retail stores during COVID-19 to accelerate the migration of sales to online platforms and further the trend of stores acting as shipping hubs and pickup locations for online purchases. Retailers may find their customers pushing stores to make temporary services during the crisis, like curbside pickup or pick-up only stores, permanent. Consequently, if they haven’t already, LP teams may need to rethink exactly what “store security” is.
“The nature of storefront security is moving outside,” McIndoe explained, adding that risk associated with curbside pickup is substantial: “You have a lot of valuable goods out there and a handful of workers with limited or no protection, and there isn’t much preventing people from popping out of a van, showing a weapon, and driving away with a bunch of goods.” He warned the number of such events could grow depending on the amount of economic desperation COVID-19 ultimately causes.
Increases in e-commerce volume will have a significant impact on loss prevention, said Sutherland, “as asset protection is less about in-person transactions and more about remote identity verification and fraud prevention.” She said merchants will need to place more emphasis on protecting against chargebacks and monitoring for identity theft and friendly fraud, where a verified consumer denies receiving or purchasing a good that they actually received.
Last-mile package security was already on LP’s radar and is likely to become an even more pressing topic. For some retailers, the crisis could catalyze them to adjust to a future retail marketplace that they’ve been sluggish to acknowledge, according to one LP pro. “It’s possible that some companies that have been fighting the curve and not wanting to compete in ‘Amazon’s space’ will realize that we’re all in their space now—that some form of online presence is important for most retailers. And the value of distribution efficiency is only likely to be solidified by this.”
The crisis should bring the risk of theft to home-delivered packages into sharper focus, and pressure could grow on retailers to devise theft prevention solutions, added McIndoe.
Security consultant Sean Ahrens also predicts that an increase in crime and theft is an inevitable consequence of the COVID-19 crisis—and that it is likely to occur at a time when LP departments are short-staffed. It’s impossible to close hundreds of thousands of US retail outlets and lose hundreds of billions in revenue without consequences. “There will be significant layoffs, and I expect loss prevention personnel will be targeted and reorganized, especially in public companies,” Ahrens told LP Magazine. “COVID-19 has dropped a bomb in the ocean, and the tsunami that is coming will be significant in a number of ways.”
Consultant Walter Palmer also expects a budget crush and foresees loss prevention needing to combat theft and loss with fewer resource. But he also says that this is nothing new for the profession. “As a tertiary function that is not core to the business, we’ve always been under pressure for budget; it’s always been hypercompetitive. So I don’t see this fundamentally changing what we do or how we go about it.”
Ahrens predicts a growth in both internal and external threats to retailers because of the pandemic. “Internal theft will increase significantly due to rationalization—the employee believes they are owed for their contributions,” he said.
Many retailers raised pay or gave bonuses to employees who helped keep stores open, implemented new safety precautions, and modified paid time-off policies. But employee sick-outs, protests, and complaints about working conditions, lack of personal protective equipment, and inadequate hazard pay was also an issue. The pillars of the fraud and theft triangle are well established. To commit workplace theft, employees typically require: (1) knowledge or opportunity; (2) pressure or motivation; and (3) rationalization or justification. All three are likely to be high for the rest of 2020 and into 2021.
External theft will also increase, said Ahrens, “as persons who recently are unemployed will be pushed toward malevolent acts.” He warned that the greatest impact will be in states that have decriminalization efforts underway, where “theft will dramatically increase,” and that it will occur fastest in those areas that have existing sophisticated “booster” networks that are easily accessible to individuals who will commit crime, such as youth, homeless, and drug-addicted individuals.
Mass Notification
One obvious takeaway from safer-at-home mandates is the value to loss prevention professionals to be able to perform their duties whether they are onsite or remote. “This means being able to receive alerts about potential issues and alerting others using on-premises and mobile devices,” explained Paul Shain, CEO of Singlewire Software.
Mass notification solutions can trigger notifications using contact closures, surveillance cameras, emails, and other tools that reach people on their mobile devices as SMS text messages and push notifications. Alerts can include URLs to view camera feeds, so loss prevention professionals can monitor situations in real-time. “The sooner everyone is alerted about an event, the quicker they can respond, potentially minimizing the damage caused by a crisis event,” said Shain. “This will be important moving forward.”
Loss prevention professionals should start by looking at how they currently send alerts about crisis events, Shain told LP Magazine. “Mass emails can be easy to ignore, and individually texting or calling people can be time consuming,” he said. “With a mass notification system, they can alert large groups or people quickly to respond to the situation taking place.”
His advice: loss prevention should work with the IT team and other leaders to determine the best strategy for implementation. “Getting buy-in from multiple departments helps get more people invested in successfully implementing new tools. It also helps to take into account all the circumstances an organization should prepare for, leading to a more effective implementation.”
Mass notification systems also help integrate disparate systems and implement business rules that should follow different crisis events. “Trying to manage disparate systems when people are remote can be challenging and can waste precious time in the event of a crisis. Unifying all the devices and systems an organization uses for communication with a mass notification platform can make managing alerts much more efficient,” said Shain.
Traveler Tracking
In the early stages of the crisis, the industry was caught off-guard by its inability to keep track of traveling employees as air travel grew chaotic and flights were canceled and rebooked, explained McIndoe. The primary cause was a breakdown in the data sharing between airlines and travel agencies and reliance on a passenger name record (PNR) to track the itinerary for a passenger(s) in the computer reservation system. “I’m pretty confident things will not go back to the way they were; there were lots of lessons in the travel space,” said McIndoe.
He believes changes are likely to include more fungible ticketing, where a ticket purchased from one airline could be used to fly on another carrier. “I can see that becoming normal,” he said, in the near term, as airline travel comes back to life amid certain restriction and carriers struggle to fly full planes and, longer term, as airlines respond to carbon footprint concerns.
The value of having a mobile app or other location awareness tool was also evident during the crisis, said McIndoe. Such a tool provides retailers with a way to account for traveling employees in the event travel records don’t. “Having multiple data points about travelers provides that security-in-depth, or risk management in-depth, which is always helpful.”
Whether retailers are better prepared next time will depend on their doing an effective postmortem of performance in the COVID-19 crisis. “If they find they struggled, and cancellations and rebooking were a problem, they might want to find a provider that can supply a more complete and multilayered data picture,” said McIndoe.
Technology
The retail industry is a leader in the adoption of new technology, and the pandemic has “significant and long-term ramifications for technology companies, those companies investing in technology to enhance operations, and the customers of those companies,” according to Stuart Carlaw, chief research officer at ABI Research. “To effect change, there must be a stimulation of a magnitude that means companies cannot do anything but make bold decisions to survive. COVID-19 is that magnitude,” he said. Specifically, it may force a change in focus at retail organizations that have heretofore placed all their attention on daily operational needs as opposed to long-term planning and resilience.
In its review of long-term effects, Taking Stock of COVID-19: The Short- and Long-Term Ramifications on Technology and End Markets, ABI suggested the current crisis will cause significant pain but also be “an enlightening experience and a great accelerator of digitalization for both consumers and businesses,” making the point that consumers, even previously skeptical ones, “are now prepared to integrate a digital lifestyle in their everyday lives.” Some consumer technology habits developed during the coronavirus pandemic may shift back once it is long over, but some effects will surely outlast the pandemic itself.
As they contend with those effects, Sutherland says retailers must be mindful of striking a reasonable risk-to-friction balance. “This balance is possible through a risk-based approach of identity verification methods and fraud controls that utilize a combination of digital identity, physical identity, and device-related data,” she explained. “By implementing this layered approach and utilizing all digital and physical data available, merchants can better protect against and adapt to emerging fraud schemes while providing their consumers with a positive experience throughout the customer journey.”
Several industry analysts are predicting the pandemic will foster growth and innovation in retail technology, specifically those that facilitate flexibility in ordering and fulfillment. Interest may also be greater in artificial intelligence and machine learning to facilitate allocation and forecasting—a lesson from pandemic-caused shortages highlighting the need to be better able to predict demand. One LP executive who could not speak on the record thinks retailers are getting a push to move past sales systems that require customers to touch screens with credit card payments or sign with a digital pen that every customer must touch. Finally, analysts think we may see the emergence of drive-through retail services and greater interest in technology that facilitates it, as well as curbside pick-up and contactless payments.
Health concerns may also be reflected in store technology, according to consultant Maurizio Scrofani, CCSP, LPC. He said he would not be surprised if stores adopt heat sensing technology that can alert when employees have a temperature above an acceptable degree or for random testing for drug use to add health indicators.
Retail’s approach to store technology may be another legacy. Specifically, a replacement of large investments in proprietary store infrastructure in favor of more nimble technology tools, and flexible, vendor-agnostic platforms that can be tied together seamlessly.
For LP, remote surveillance capabilities are likely to gain traction, as employee travel and store audits may slow and as stores review whether it makes sense for store security to be less people based and if greater remote monitoring might be more reliable and sustainable. Well-publicized security issues that arose with videoconferencing during self-isolation are a reminder to security teams to review and ensure the security of any remote technologies they implement.
Finally, armed with flexible technology tools, retailers and LP teams may be able to think creatively as they plan for how technology could be effectively used in different disaster scenarios or crisis events. For example, smartphone location data was used during the pandemic to identify where social distancing guidelines at retailers were not being followed. And convention center McCormick Place reached out to their access control provider to create a “proximity report” to identify employees or badged visitors that had been in close physical contact with someone who had recently reported a positive COVID-19 diagnosis, which it then made free for its customers. “Only about half of Security Center features are a result of Genetec anticipating which technology will be useful for our customers. The other half are as a result of what our customers dream up. They regularly imagine clever and innovative ways to use the system and suggest useful new feature ideas,” said Genetec President Pierre Racz.
Intelligence
Intelligence-gathering tools are likely to seem like a wiser investment post-pandemic, as many retailers struggled with getting and acting on localized intelligence about the plans of health department or state officials. It’s the type of challenge that crisis event management platforms are designed to overcome—facilitating an organization’s ability to gather information, assess risk, locate people and places at risk, and take mitigation measures in line with the risk.
“The corona crisis pushed many companies to realize they lack the tools needed to quickly support their workers in an emergency situation and make informed decisions to ensure safety,” explained Magnus Hultman, CEO at Safeture, a cloud-based platform designed to manage employee safety and risk/crisis management.
For a major retailer with multiple locations, tools that can leverage publicly available information—such as online posts and government weather data, notifications, and warning—can be essential to effective crisis response. For example, software platforms can provide intelligence about assets at risk from approaching weather events, tracking storms graphically against the locations of store assets and indicating the potential impact of an event on those assets.
While response plans are critical, a real-time information platform can provide crisis response leaders with better understanding of the scale of an event and allows for more timely and informed decisions about issues that have significant financial ramifications, such as how to reroute supply chains and whether it is possible to keep store doors open. They can also be central to a traveler safety program by identifying employees who are in areas where protests, disease, or social upheaval is breaking out. “For any type of potential disruption, you want to be as proactive as possible,” according to Ravi Maira, vice president of industry and solution at Everbridge, a provider of emergency notification services.
Although crisis response could drive retailers’ interest in such tools—once they regain financial footing—they have other benefits. The ability to monitor social media, for example, can provide important value for loss prevention, such as to understand loss events in the store and for intelligence on mass-coordinated shoplifting events and risks from organized retail crime.
Supply Chain
While government mandates forced many retailers to close their doors, some also found online sales impossible because shelter-in-place rules forced distribution centers to close or because manufacturers closed shop. Yet for all the hardship and headaches the pandemic caused, one LP professional believes the pandemic could provide stores with valuable insight into their supply chains that could result in more efficient movement of merchandise in the future. Unlike localized storms or other events that often disrupt only a segment, the pandemic has pressure-tested entire retail ecosystems, which is “going to bring a lot of issues into focus, [and] processes are going to be scrutinized and cleaned up as a result,” he said.
Some analysts see an acceleration in retailers turning to microfulfillment centers, which are small buildings abutting existing stores to facilitate online fulfillment. Reports are that Walmart, Kroger, Albertsons, and Amazon are among those signing agreements with providers in the microfulfillment space. Prospects for microfulfillment centers were already good, and now it will be a boom, some analysts predict.
Supply chain expert Maurizio Scrofani believes that a “squeezing or shortening of the supply chain on verticals that we may now consider to be critical” will be a legacy of the pandemic. “I believe we will also localize aggressively farm-to-fork supply chains,” he added. “Mode of transportation will continue to swing toward parcel as people increase online ordering and as it is becoming the main method of purchase.”
Some analysts say the pandemic highlighted the problem of relying too heavily on one geographic area or on too-few suppliers and could spur companies to diversify to reduce risk in their supply chains. When merchants increase suppliers to fortify their supply chains, they also need to mitigate the risks that it creates, advises Sutherland. “This onslaught of new vendors requires nimble processes to properly vet smaller businesses to guard against fraudulent activity that could affect inventory or the risks for merchants and marketplaces,” she said.
Crisis Leadership
LP has experience turning crisis into professional opportunity, according to Karl Langhorst, “During the avian flu, loss prevention—in many organizations—was looked upon as an integral business partner in the pandemic planning process and in many cases gained a seat, or their seat was elevated at the corporate table.” A similar opportunity is being presented by the current tragedy, he suggested. “Disruption is the new normal, and loss prevention practitioners are being provided a unique opportunity to elevate our profession to a new level never seen before.”
While learnings and subsequent business process changes from that previous pandemic surely helped prepare many retailers for COVID-19, others may have felt a bit like they were building a plane while in the air, according to postings on online forums. As retail organizations turn to postmortems of their handling of the COVID-19 crisis, some are likely to give themselves middling marks. The fact is, despite an increasing focus on resilience as a core business objective, many retail organizations have trouble managing low-probability, high-impact crisis events.
Plans may not be the problem. Surveys show most companies have crisis contingency plans, yet crisis events routinely result in their collapse. According to “Are Sensation Seekers in Control? A Study in Crisis Preparedness,” research published in Risk Management (vol. 16, no. 1) by Zachary Sheaffer and Yael Brender-Ilan, inadequate preparedness and crisis response is a people problem. Crises often move faster than decision-makers.
While many crisis events are, by their nature, impossible to predict, the impact they have on organizations can be dramatically curtailed if an organization is crisis prepared and managers are more adequately prepared to effectively manage the resultant disruption. That raises a key question: if you want a management team that can help direct the organization toward crisis preparedness, what types of leadership traits should you be looking for? In the wake of the COVID-19 crisis, it’s a question likely to take on more significance. Many retailers may be looking at personnel for their ability to provide leadership in times of crisis to improve the company’s resiliency in future events. So who makes the best crisis managers?
The study has a practical implication: encourage lower-level leaders to be attuned to the merits of transformational leadership, say researchers. “Preparing organizations for crises is not merely technical; it entails the organization-wide mobilization of competencies, willingness, and enthusiasm.”
The odds of an organization surviving future crisis events are greatly enhanced if it conscientiously mobilizes transformational leadership to enhance crisis preparedness, researchers concluded.
Learning Lessons
Studies show companies tend to respond better to a crisis the second time around. That is, one of the best ways to become disaster-ready is, unfortunately, to experience a disaster. But what and how much your retail organization learns from the COVID-19 global health crisis significantly depends on the type of crisis-management structure in place. Understanding the link is critical for maximizing “lessons learned” and preventing wrongheaded fixes that could potentially be harmful when other types of disasters hit.
Extracting and acting on lessons learned will be vital—not only for retailers to return to profitability but also because we’re not necessarily past the crisis. “We may experience multiple waves of this virus,” McIndoe warned. “Retailers and LP need to prepare for another wave.”
In the immediate future, Ahrens suggested the following game plan for LP leaders to help firm up their position to lead and meet future challenges:
- Create a strategic plan—processes, plans, goals, and metrics. “Be specific in your goals.”
- Document and record all recoveries/revenue to the organization.
- Make some noise. “Communicate successes, especially those that show relationships with law enforcement or other peer loss prevention and asset protection professionals.”
- Prepare an elevator pitch. “A thirty-second or one-minute overview on what the group is doing, work that needs to be done, and successes,” said Ahrens. “Everyone in your group should practice it. You never know when you will get time with an executive.”
- Create a short monthly list of accomplishments and distribute (via email, Intranet, and so forth.)
- Identify and cultivate your “A” players and be prepared to make tough decisions quickly.
- Did pre-event assessments identify risks and grade them appropriately? Why not?
- Did our mitigation measures offset the risks? Why not?
- Were managers properly prepared, and did they apply contingency plans?
- Has risk now changed post-incident?
- How should immediate, interim, and long-term strategic plans be changed?
- What approaches, training, policies, and plans need to be adjusted?
While most retailers and departments are likely to ask themselves the questions above, it’s important to be aware that approaches to crisis response come with a bias. The type of crisis-management style you have in place will color the way you learn from COVID-19.
At the other end is a more decentralized response, which seeks to empower individual stores, departments, and people to manage and respond to crisis. Publix Super Markets seemed to fall into this category. While many grocers standardized safety precautions chainwide, it let store managers choose measures based on their view of local conditions. This approach structures crisis response around daily roles and responsibilities and policies, as opposed to consolidating authority up the chain of command. Advocates of this approach believe it raises crisis awareness and knowledge and makes the organization less dependent on top managers to initiate response and manage crises.
Most organizations have characteristics of each within their crisis-management styles, but an organization—or a global loss prevention department—will typically fall more into one category than the other. To the question that naturally follows—which is better?—there is no clear answer. Both have their advocates among crisis-management experts.
Taking a step back to assess your crisis style is important because it will affect what and how you learn from a crisis event, according to studies of organizations post-disaster, including a study published in the Journal of Homeland Security and Emergency Management (vol. 6, no. 1), “Learning from Crisis: A Framework of Management, Learning and Implementation in Response to Crises” (Edward Deverell and Eva-Karin Olsson 2009).
After a crisis event, the managerial group presiding over a decentralized response learns “in a behavioral fashion by creating new formal policies and structures,” the researchers concluded. It makes sense. Lacking a strong mandate because of its reliance on empowering others in a crisis, crisis leaders tend to spread out lessons learned into the organization. This creates new procedures and policies “so a routine response [can] be applied to a similar crisis situation.”
Lessons learned under a centralized crisis management response are more cognitive and personal, according to the study; this, too, makes sense. A managerial group that has strong authority to make speedy, overarching organizational decisions in a crisis is less likely post-crisis to feel an urge to create new procedures that go out to the rest of the organization or to create new organizational structures. Rather, the lessons these managers take from a crisis focus on what they personally learned about handling events.
It’s important to be sensitive to how your organization will learn from a crisis to avoid misapplying lessons learned. Under centralized crisis management, the individual learning that will take place among crisis leaders is likely to help a company become nimbler in handling a crisis the next time around. There is a danger, however. If it’s only the centralized crisis leaders who learn valuable lessons from a crisis, then an organization risks losing the benefit of experience when those specific individuals are no longer there or available. Without those top managers, an organization may become paralyzed from a lack of competence to cope with crises. What does this mean? It suggests that organizations with a centralized crisis response, whose managers will learn individual lessons from a crisis, must make a concerted effort to spread lessons learned throughout the organization.
Companies with a decentralized process for managing crisis must also guard against mishandling the post-crisis improvement phase. While they don’t risk lessons disappearing when leaders leave, the structural changes that are likely to follow a crisis at these organizations threaten the very flexibility that is often the reason behind their chosen approach to crisis response. Since implementation is based on lessons learned from the last crisis, it might lead organizations to learn the “wrong” lessons or create set policies that limit the ongoing search for new solutions. In applying lessons learned from a crisis event, companies that possess a decentralized crisis response approach must guard against formalizing response to the degree that they hamper flexibility and creativity among the very workers they empower to make decisions in a crisis.
