The Year Ahead in LP

These are clearly turbulent times in retail. How people shop is changing—and with it the strategies employed to attract and retain customers. Store technology is changing, offering new opportunities, and ushering in new risks. What does the upheaval mean for loss prevention? What are the primary challenges the industry may face this year, and how might we rise to meet them?

For perspective and input into where 2017 may take LP, we turned to executive leadership from three leading retail solution providers to help identify some common themes. Participants included Rod Diplock, CEO of Controltek; Steve May, CEO and president of LP Innovations; and Patrick O’Leary, vice president and general manager of the Americas of Nedap Retail. Not shockingly, our conversations were interesting, insightful, and struck similar chords with each other.

Perspectives-column-March-2017

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Was there a key trend or development in 2016 that you think will drive the loss prevention agenda in 2017? Or might something new steal LP’s focus in the year ahead?

DIPLOCK: In one word—connectivity. Steve Case, the founder of AOL, once said that to say that something today is Internet-based is the same as saying that it’s electricity-based. Being Internet-based is a default for almost any technology today. I think the same will be the case with connectivity in a few years when it comes to LP systems. Today, a standard EAS system goes “beep” when something goes out the door. A connected EAS system can communicate with the surveillance video to capture that event for easier investigation. This requires connectivity. Taking it another step further, an RFID system does all of the above and also tells the LP team that a pair of blue Levi’s in size 34 left the store and communicates that to the inventory management system. Due to budgetary constraints and some technological limitations, many retail enterprises can’t make an immediate leap into this kind of future. But I think it’s time to start thinking about and planning for a day when all LP systems will be interconnected.

MAY: The retail industry will continue to undergo a seismic shift, and everyone in loss prevention—and anyone engaged in retail—will be challenged because of it. It’s similar in significance to 2008 to 2009, when the failure in the macro economy had a huge impact on retail and store closings; only this time the challenges are being driven by the shift away from brick-and-mortar stores and the acceleration of online sales. Just look at Amazon. They conduct one-in-three retail transactions. They have 360 million products. That has a tremendous impact on retailers, including how to shift to online, cutting costs, and maybe store closings. I’m not sure when we’ll realize an equilibrium between brick-and-mortar and online, but we’re not there yet. We’re in the middle of that dramatic change, and all retailers will be challenged to deal with it, and that’s going to have an enormous impact on every discipline—merchandising, finance, as well as loss prevention. It’s going to affect everything we do in LP because it alters everything about how a retailer operates. And this is really unique because unlike an economic crisis where things eventually return to normal, after this shift there is no turning back.

O’LEARY: I think the key trend is definitely the advancement in omni-channel retailing. Although omni-channel was certainly not developed in the last year, more and more organizations are finally starting to understand all of the necessary components that need to be synchronized in order to play in this space. For example, RFID Journal recently published an article revealing what some of us already knew—that omni-channel cannot work without RFID. There is no other tool on the market that can manage inventory like RFID technology.

As you look over the risk landscape in 2017 and consider the many challenges currently facing LP, which of these do you think the industry is least prepared for or perhaps not giving enough attention? In other words, are there any areas where you think LP might need to step up its game?

DIPLOCK: I don’t think it’s so much about LP stepping up its game as it is about thoughtfully continuing its game. Every year there are new challenges, and at the same time there are emerging technologies that offer new promises. But one of the basic functions of LP never goes away, and that is fighting shrink. As an industry—and I mean both on the retail and solution provider side—we have to be careful not to get distracted by every new thing that comes along. We should always keep in focus what’s proven to be effective and continue to drive it. Take EAS for example. It’s neither new nor sexy, but it has proven to be effective over several decades of use. Why neglect it by completely refocusing on a promising new technology that’s still just a promise? I don’t suggest that we should not innovate or take calculated risks on new things. On the contrary, we should; but at the same time never forget the primary function of LP or neglect the proven tools and strategies that help us get the job done today.

MAY: First, accept and embrace the shift in retail. There will be pressure on everyone as a result of a realignment of budgets across the board. We’re seeing reduced budgets because of the shift to online. One of the major challenges is how do you manage within new resource allocations and still be effective in meeting today’s challenges? For example, how do you deal with organized retail crime with a cut in budget? There has been a lot more visibility and understanding of ORC, but what if you’re now challenged from a resource perspective? How do you advocate effective solutions without those resources? It’s going to have to be a combination of an intelligent use of resources and enabling technology. Another concern is employee fraud. It’s still a major component of loss in retail, and the great shift to online will cause additional uncertainty and stress among store personnel, which may cause additional pressure on employee fraud. People always look for a justification to commit fraud, and I’m anticipating this uncertainty in retail is going to provide it for some.

O’LEARY: Again, I think the answer here surrounds omni-channel. The truth is, LP professionals need to be fanatically involved within every aspect of what omni-channel retailing offers. Most retailers are playing in this space, but few have mastered it. The challenges are complex, and when any part of the complex omni-channel machine fails to function, oftentimes its LP who is looked to for answers. When customers decide to buy online and pick up in a store (BOPIS), they expect the item to be there. But when it isn’t there, everyone is looking at LP for an answer. At that point, it’s too late. The damage is done. Some of the most successful companies ingrained in the omni-channel way of business have their LP executives involved at the onset. LP professionals have a way of identifying risks of loss before they occur, so having LP involved at the beginning will allow an organization to plug the holes before a customer becomes disappointed and a brand is damaged.

Technology advancements are coming fast and furious. As you look at the year ahead, do you see technology reshaping retail or loss prevention? If so, how?

DIPLOCK: No matter what new technology is widely adopted, I believe it will be predicated on its ability to create data. The creation, moving, sharing, and using of data in retail is going to continue to be one of the most important adaptations in our industry. Now, while the technology will help capture the data, it’s the people who will need to interpret and make decisions with that data who will make a real difference in their enterprises. So when it comes to how technology will reshape retail and loss prevention, I strongly believe it will force all of us to get better at understanding which data is most meaningful in our decision-making and then becoming skillful at using that data to achieve the business objectives.

MAY: Anything to do with inventory control is going to be a key technology. When you can integrate GPS, Bluetooth, and RFID for insight into products as they’re manufactured, sold, potentially returned, or diverted on purpose or because of fraud—these are the technologies that retailers need to invest in. These technologies are finally maturing and getting smaller, less expensive, and showing great promise. The challenge is managing investment in those critical technologies and using it to improve sales performance with the right inventory at right time with an integrated approach that benefits the entire organization.

O’LEARY: Absolutely. Look at what Amazon has done with Amazon Go—no line, no checkout, just grab and go. Technology will always continue to change, and that change will reshape retail and create new challenges for loss prevention. The opportunity for the LP role to advance and become more ingrained in the retail landscape is greater than ever today. In my opinion, loss prevention needs to be proactively involved in all areas of the business, and not just when there is a problem. They should be involved in all areas of the business through building positive relationships with leaders in merchandising, operations, human resources, and even accounting, so they can be at planning meetings for nearly all new company initiatives.

There is a lot of industry talk about changes in retail strategies to drive revenues. One of these, for example, is to offer more engaging in-store experiences and events to entice customers to return to brick-and-mortar stores. Do you see any emerging retail strategies impacting loss prevention?

DIPLOCK: Many industry professionals I talk to understand fully well that LP cannot operate in a silo. So they are increasingly placing an emphasis on building partnerships with other departments in their organizations. I think this is the key to being able to take on the expanded role of not just preventing loss, but also helping drive more top-line business. Having good relationships with other stakeholders helps LP understand what it can do to help merchants and operations, while at the same time helping their peers understand the value of LP and what they can do to help LP do its job. Along the same lines, I think it’s crucial to network with LP professionals from other companies through industry organizations and think tanks to share experiences and ideas.

MAY: Across the industry there has been a significant effort to focus on enhancing the customer experience to drive repeat business. One example is return policies, where some retailers have created a policy to make it difficult to make an exchange, while others have taken the opposite approach to allow customers an easy experience, which may have more fraud attached to it. There needs to be a balance. An LP executive can’t advocate making returns as difficult as possible and not think about the need to enhance guest services. We need to work more closely with those that are part of the process of enhancing retail experience and be willing to be more creative in our approach to the fraud issue.

O’LEARY: We will continue to see more and more strategies implemented by retailers to bring customers into their brick-and-mortar locations. The key will be to make sure that when the customers come in, the product they are looking for is available. If all inventory within retail was accounted for, there would be no need for loss prevention as we know it today. At its core, LP is really about inventory management. No matter what changes may come to any retailer’s strategy, the protection of inventory will always be the cornerstone of that strategy. Simply put, a retailer cannot sell off empty shelves. And no matter what type of in-store experience you offer if the product is not on the shelves, it won’t matter. LP professionals need to excel at building relationships. There is no technology, no new retail strategy, or no new widget that will change that. Loss prevention is about educating the executives and employees on what causes loss and risk of loss and finding ways to entice them all to adhere to the controls put in place to protect assets. That can only be done with buy-in from the C-suite all the way down to the store employees. That takes highly effective relationship-building skills.

When we take look back at 2017, what do you think will be the year’s big story in loss prevention?

DIPLOCK: The big story might be this—“Again this year, not everyone followed the Ten Commandments.” I say this half-jokingly to emphasize the point made earlier that no matter what the actual big story ends up being, the need for loss prevention will not go away since thieves will always think that actually “thou shall steal.” This might not be a bold prediction, but keeping this in mind is what keeps my team and me focused on driving new creativity to help retailers. At the end of 2017, theft and loss in retail will continue to be a major problem that we will have to continue to address.

MAY: I think we’ll have seen some real winners and losers both among retailers and among LP leaders. Unfortunately, there will be some who don’t adapt to the great shift going on, who don’t react effectively to resources challenges, and who insist on doing things the way they’ve always done them. If you’re an LP director working for a challenged retailer that is closing stores and comps are flat, you have an obligation to help create the most profit you can. You can’t just sit back and hope it passes. You have to become a true partner in profitability, take some leadership, and take some risk. It’s the LP leaders that adjust to the new reality—and examine how to reapply resources in more effective way, work with different partners, find new solutions, and help drive profitability—who will be the winners. It’s retailers and LP pros who are unwilling to try something out of the box and just hope that things don’t get worse who will be the losers. Doing nothing today is a prescription for failure.

O’LEARY: I think the big story will be how winning retailers embraced RFID technology in ways that allowed them to service their customers the best. Just a few months ago, Macy’s announced plans to have 100 percent of all items in every store RFID-tagged by the end of 2017. What does Macy’s know that other retailers do not? Perhaps they just decided to be one of the first to do what they feel needs to be done to service their customers better than their competition. I predict the big story will not only be Macy’s success in this endeavor, but also how many other retailers followed suit.

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