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Shaping the Future of Loss Prevention

EDITOR’S NOTE: This article was originally published in the summer 2019 edition of LP Magazine Europe. British spellings have been retained.

A common job interview question goes along the lines of “if you were to be offered this position, where would you see yourself in five years’ time?” This question helps the future employer understand whether there is an alignment between the employer’s expectations on career progression and the candidate’s. It’s also a question that can allow the candidate to express their thoughts on industry changes, the new skills they want to develop, and the level of ambition they hold for progression.

At a recent ECR meeting in Madrid, the working group of fifty-plus retailers set about answering the same question: where does loss prevention see itself in 2025? The organisations represented included AholdDelhaize, Abercrombie & Fitch, Carrefour, Delhaize, Desigual, Dyson, John Lewis, Kaufland, Lidl, Mango, M&S, Metro C&C, Sainsbury’s, S Group, Sonae, Tesco, TK Maxx, Topshop, and Waitrose. The representatives were organised into eleven groups and were tasked with answering four specific questions:

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  1. What will be the sole purpose, belief, and motivation of the team and its capability in 2025?
  2. Name three new or different priorities, processes, and activities the team will be undertaking to improve losses in 2025?
  3. What will be the deliverables and outputs of loss prevention in 2025, and what people, processes, and technologies need to be in place to deliver these deliverables?
  4. What are some initial steps and actions that you could take in 2019 to help ensure you are ready for 2025?

Each of the eleven groups completed a template, and the words they used were then visualised using the Wordle tool, where the size of the font would represent the frequency of the words and terms used. The larger the font, the more popular and stated the word or term. This article will take you through the findings and will conclude with thoughts on possible next steps for you and your team.

Retail Is Changing What Loss Prevention Does Tomorrow Will Be Different Than Today

We are living in a period of unprecedented change in retail—dynamic and exciting but at the same time highly uncertain with news of ever more changes in the possible ways of shopping, more bankruptcies, more store closures, and more job losses arriving daily in our inboxes. The world of loss prevention is not unaffected, with more cost savings imposed on loss prevention teams by top management in the relentless pursuit of improved margins. The new “normal” is to hear or read about how retail loss prevention teams, especially the field operations and guarding, are being downsized and how central teams are being “spread thinner,” with two or three jobs becoming just one, with the new heads of loss prevention tasked with additional responsibilities such as business continuity and safety.

More than ever, the opportunity for you and your loss prevention team is to get ahead of the next management decree and cost-cutting exercise and to shape your own future by looking over the horizon and, using the best available knowledge, imagining what the future might look like. With this as context, the working groups in Madrid discussed, debated, and drew conclusions on each of the four questions. These are discussed and displayed next.

What Will Be the Sole Purpose, Belief, and Motivation of the Team and the Capability in 2025?

As illustrated in the figure below, a wide range of responses were given to this question.

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The most popular answer to the question on the future purpose of the loss prevention emerges as “facilitate change” or, as Emeritus Professor Adrian Beck has noted in previous articles, the need for loss prevention leaders to be change agents. The emphasis on enabling change is a recognition of the following:

1. Reporting lines of the loss prevention team will shift to the chief operating officer and away from internal corporate functions such as finance, legal, or human resources. This shift in reporting promotes a more collaborative relationship with the operations function and an emphasis on being part of and facilitators of the changes in the operating model.

2. The increasing scope of the loss prevention team beyond just managing unknown loss will imply that the traditional resources under their direct control, such as data analytics, video, field loss prevention teams, guarding, and so forth, will have a more limited impact on a bigger problem. And their ability to directly deliver improvements will be reduced, hence the need to work with others to enable change.

3. Finally, it is a reflection on the increasing appetite of their businesses for risk and the growing pressure on productivity. For example, self-checkouts deliver productivity improvements but will increase shrink, or as one retailer CEO recently stated, they are a “license to steal.” With a “seat at the decision-making table” and the loss prevention team invited to be a part of each and every multi-functional change project team, they will inform the business of the choices they could take to reduce retail loss and danger to then deliver a return on investment (ROI) that is better than would otherwise have been the case without the input from the loss prevention team.

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For some, this move away from a narrow focus on a single problem, for example, unknown loss or shrink only to a role where the team is more of a consultant to the business, could be a big change against the bigger problem of total retail loss. It will be an approach that would require a much deeper understanding of the business and a far more collaborative way of working. At the same time, it requires a much deeper understanding of all the problems of total retail loss, the root causes, and the trade-offs. It is likely that the shape and skills of the team will need to change as the risks to the business change, for example, by reallocating resources to manage the emerging risks and problems associated with e-commerce.

Name Three New or Different Priorities, Processes, and Activities the Team Will Be Undertaking to Improve Losses in 2025

The figure below shows that the three new priorities most mentioned were collaboration with other retailers, data analytics, and a broader reach.

Working with Other Retailers
As an observer, you could be forgiven for believing that retailers are happy as long as bad actors are deterred from their stores. This is known as the “I don’t have to run fast; I just need to run faster than you” approach to managing losses. However, this group consistently called out that “collaboration with other retailers” has to be the new norm by 2025, and it is easy to see why. The potential of collaboration is compelling. Just these three examples provide a flavour of the opportunity across three aspects of retail loss:

1. Crime Prevention. Retailers could be more successful in deterring thieves if the names of and the video evidence showing those who repeatedly steal from each of their stores and/or threaten store staff with violence could be more easily shared and acted upon.

2. Common Approaches to Common Challenges. Beyond crime prevention, there are numerous opportunities for retailers to work together to improve common operational challenges to accelerate the improvement from the vendor community. Self-checkouts would be an example; most retailers face challenges with managing the weight-control feature of self-checkouts. By sharing their challenges and an agreed set of requirements for improvements, vendors could respond faster to the need for change, with the confidence that any intervention could meet all retailers’ needs.

3. Innovation. As the landscape of regulations and risk in retail changes, many of the current technologies and approaches can, over time, become less relevant. To ensure that there is a constant stream of innovations that address the emerging but unmet needs of the industry, retailers can work together to create a common brief for start-ups and innovators.

Data Analytics
The second new priority would be data analytics. In 2004, Emeritus Professor Adrian Beck wrote in a report for ECR on loss prevention that the industry was living in what he called a data desert. For some, this may still be the case. For most, however, it probably now feels as though they are swimming or perhaps even drowning in a data lake.

Since 2004, the possible data sources within retail businesses have rapidly expanded beyond just traditional sources, such as inventory audit data and electronic point-of-sale transactions, to now include a rich stream of data from other streams, such as video, self-checkout activity, location-tracking data, demographics, machines (fridges, ovens, alarms, EAS gates, and so forth), inventory adjustments, biometrics, and social media.

The new work for loss prevention teams will be to make sense of all this data, to identify how it can be combined and integrated into a single platform to enable statistical tools to be used to rapidly seek out and visualise previously unseen insights on the causes of retail loss.

When data analytics becomes the foundation of the 2025 loss prevention capability, the belief is that the function will become an even greater and more indispensable “asset” to the organisation.

Broadening the Reach of LP
The third most mentioned new priority was the development of a broader functional reach, both in terms of scope and the breadth of stakeholders who would need to be engaged. Given the continued pressure to reduce head count, this is not a surprising insight since it’s highly likely that any “work” on total retail loss will need to be spread across a fewer number of functions and leaders. In fact, this is already happening, with loss prevention pyramid heads increasingly being held accountable for a much broader range of cross-organisational activities, such as losses occurring both in stores and online, for waste, safety, security, insurance, and business continuity.

A larger scope also implies that the future loss prevention team will need to engage a far broader set of stakeholders across the business. Like the advertising from a famous beer brand, the future loss prevention team will need to reach more parts of the organisation than any other single function, and even more outside, if it is to be truly effective.

So if collaboration with other retailers, data analytics, and a broader reach are what the teams will be doing differently, the next question is, what do they need to do to make this happen?

What People, Processes, and Technologies Will Need to be in Place to Deliver Your New Capability to the Organisation?

The figure below shows that the three most popular themes to emerge from the groups were the ability to use data, talent acquisition, and RFID.

1. Data. Throughout this exercise, data has emerged as a dominating theme. This group suggested that future loss prevention teams will need to look at growing their data analytics capability internally or will need to look to acquire this capability from the outside. At the very least, the view was that the loss prevention leader of the future will need to be familiar with the principles of statistical methods and data-visualisation techniques.

2. Talent. If in the past, and to generalise somewhat, the leaders and the loss prevention team were recruited from law enforcement and security, the discussions in Madrid suggested that the future talent pool looks very different. For while the skill sets from law enforcement and security will still be in demand, the “net” for future recruitment is likely to be cast far wider to attract leaders from across all parts of the business, to help build relevance and knowledge as well as deep experts in the emerging areas of competence, such as data handling and project and change management.

3. RFID. Throughout the discussions, new technology emerged as a key theme—video analytics, artificial intelligence, the Internet of Things, biometrics, the list goes on. For this cohort of retailers, RFID was an example of an emerging technology that can deliver new data to manage loss by bringing a new level of visibility to inventory and transaction history.

What Are Some Initial Steps and Actions You Could Take in 2019 to Help Ensure You Are Ready for 2025?

Above all, the groups were agreed on two priorities to get started on in 2019: engaging others and upskilling on technology. Engaging others requires an understanding of their specific context, priorities, and key measures. It is enabled by data and the ability of the loss prevention team to translate their problems into a language relevant to the stakeholders they are trying to engage.

As the figure above illustrates, the groups were agreed on two priorities of where to get started.

A summary of the research by Nicole DeHoratius was published in the September-October 2015 edition of LP Magazine and is available on the magazine website.

1. Engage Others. By way of example, a 2015 report by Nicole DeHoratius titled “Opportunities and Challenges for Engaging Merchants in the Protection of Retail Assets” commissioned by the US-based Retail Industry Leaders Association shared that if the loss prevention team simply showed up at buyers’ desks with a list of the company’s top shrink lines, it was unlikely to lead to an increased level of engagement because (a) buyers are not measured on shrink, (b) they think of shrink as external theft and outside of their control, and finally (c) they are busy. Buyers are the champions of their category, and they are looking for solutions, not new problems to add to their list of priorities.

A more successful approach would be for loss prevention to demonstrate to the buyers how the problem of loss is impacting sales and store execution. Using additional metrics such as out-of-stocks or inventory-record accuracy will help the buyers more intuitively make the link to lost sales. Finally, root-cause analysis and possible interventions that the buyers alone can initiate will help secure a positive engagement.

2. Technology Upskill. Upskilling on technology is more than just scanning the Internet, the retail technology newsletters, and so forth. Upskilling means more deeply understanding these technologies and being able to qualify them for your business to answer key questions. For example, what existing work process could the technology automate? What would be the core and primary business case? How could the technology be scaled across the business, and are their claims and costs realistic and fully stated?

Other themes mentioned for immediate action were culture change, engaging top managers, and data systems integration—this last one being critical to the ambition of the future loss prevention team to more holistically manage the problem of retail loss.

Shaping Your Future
While hard to predict what even next year will look like in retail, this exercise did bring to the surface some interesting conclusions about what a group of current loss prevention leaders think the future might look like in 2025. For this group at least, the three high-level conclusions were:

1. The scope of the loss prevention “work” will expand as the shape of the business evolves, the relationships between different types of losses becomes more apparent, and the number of available people to lead the work reduces, as organisations inevitably downsize.

2. The role of the loss prevention group will increasingly be about getting a “seat at the table” and being part of and an enabler to the business, delivering profitable change. This means bringing new data to the consequences of the change, the implications on retail loss, and recommendations for interventions to ensure that the change is more profitable than it would otherwise have been without their engagement.

3. Data, data analytics, and the ability to handle and make sense of all the many sources of data will be a new and an additional core competence of the loss prevention team of tomorrow that will make the team even more indispensable.

In this article, we summarised how those leaders in the Madrid meeting saw the future, but the real point of this article is to act as a prompt for you and your team to find your own responses to the question, what does loss prevention look like in your company in 2025? With organisations in a constant state of flux, consider proactively undertaking this exercise as a team before you even get asked and taking your response to the very top to shape your team’s future, the way you would like it to be shaped.

As with other articles, we would welcome feedback and hearing how you got along with these discussions and how they compared to the points made in this article. If you would like to participate in any of the ECR working groups, there is no cost to participate, and the dates of the meetings can be found on the ECR website. 

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