Collaboration key to tackling retail losses

This article is brought to you by Retail Technology Review: Collaboration key to tackling retail losses.

In the economic climate and as the public tighten their purse strings UK retailers face a tough time in coming months as they seek to balance the books and turn a healthy profit. Recently The Retail Fraud Study, an extensive research project that worked directly with 100 of the UK's top retailers, carried out by Retail Knowledge, a leading retail expert, found that losses in the UK retail sector had increased by 10% totalling £3.4 billion. Despite this hit to profits, retailers remained reluctant to collaborate with each other to reduce losses, with 22% of retailers believing collaboration is not necessary to combat retail theft and fraud.

Paul Bessant, Managing Director of Retail Knowledge who facilitated the study, commented: "It comes as quite a surprise that despite seeing such a steep rise in retail losses that retailers don't want to collaborate in order to tackle the issues the industry faces. In a tough period of trading where retailers are having to reduce spending on things such as loss prevention collaboration would provide a relatively cost effective method of reducing losses, which last year equated to 1% of sales – nearly matching profits which equalled 1.7% of sales."

With losses increasing as a result of theft and fraud, and retailers reducing spend on loss prevention it seems astonishing that they remain reluctant to collaborate with each other. James Harris, Commercial Director at Volumatic the UK's leading manufacturer of intelligent cash handling equipment, speaks to retailers on a daily basis. He believes that a proportion of retailers are afraid of losing a competitive edge and those that do want to collaborate are hampered in their attempts to collaborate by data protection legislation.

Harris comments: "Collaboration between retailers can sometimes cause controversy. We find that whilst some Loss Prevention departments see the value in collaborating with other retailers to prevent crime, others in their respective organisations may see sharing best practice as threatening their competitive advantage. Collaborating can be further complicated by the Data Protection Act which retailers must be mindful of, although CIFAS' National Fraud Database is an example of such an effort run by an independent third party to assist retailers in their efforts to combat criminal activity."

Ady Houghton, Head of Corporate Audit at Iceland, believes that competition between retailers provides the greatest barrier to greater collaboration and that this culture of competition makes it difficult to gauge how successful you are being at tackling losses.

Houghton says: ""Collaboration" is relatively "new" to retailers. We work in tough, competitive environments and there are few opportunities for high level Loss Prevention people to develop trust with their opposite numbers, who are often key members of a direct competitor. It is in our nature to be competitive, so it is not easy even though we all know that fraud goes on. Different businesses will be at different levels of Loss Prevention development and of course it is difficult for retailers to benchmark when so little information is shared."

Whilst a segment of retailers remain reluctant to share information with each other the Retail Fraud Study found that 55% of retailers at least communicated about collaborating. Mr Houghton strongly believes that, whilst many business forums exist, a dedicated retail community needs to be created. He feels that such a community with strong leadership could help retailers benefit from greater collaboration and that the current lack of leadership on the issue is hampering the sector in its battle against theft and fraud.

Houghton continued: "The big issue, in my opinion, is for strong leadership of perhaps a forum where there is mutual trust between the parties and especially respect for the leadership. There needs to be support in determining and protecting what information is to be shared. Should it be by product, location or scenario based? I believe that to be effective any such initiative would have to be segmented to be meaningful; food, non-food, DIY, etc. And of course retailers could receive proper guidance over the issues of legality vis a vis sharing of data under The Data Protection Act. I would also say that whilst there are apparently lots of forums and interaction, actually that whole process too is undermined by a lack of leadership, bringing everyone together. "

Whilst collaboration between retailers was a key issue identified by the industry, retailers also pointed to other areas where they could benefit from greater collaboration. Top of the list was collaboration with Police forces with 23% of retailers highlighting this as an area where they could use greater assistance when tackling losses.

James Harris says that whilst there is willingness from both retailers and the Police to work more closely together practical restrictions prevent them from developing an effective strategy.

Harris observed: "For some time now the Association of Chief Police Officers and retailers have been trying to find ways to collaborate more effectively in the fight against retail crime. Unfortunately, despite significant desire from elements on both sides, not much progress has actually been made. The fact that Police budgets are being cut has lead some retailers to conclude that, if they need help, they need to help themselves. At Volumatic we work to assist retailers in this quest through designing and implementing intelligent cash handling systems that provide just such "self help", by eradicating forgeries and reducing the opportunities for theft or fraud."

A large percentage of retailers identified other areas where they felt they could benefit from better collaboration including banks (19%), suppliers (14%) and use of a common technology platform (12%). Retail Knowledge's Paul Bessant believes that, whilst areas such as retailer to retailer and retailer to law enforcement will always remain high profile areas of discussion, the sector would benefit from a comprehensive collaborative approach.

Bessant observed: "There are so many areas across the retail sector that are open to abuse and many opportunities for those who wish to conduct criminal activity to exploit - throughout every stage of the retail cycle. Whether it be forging stock counts, hacking online operations, shoplifting, payment fraud or gaps in technology the retail sector, despite their best efforts, have gaps in their systems. The retail sector has a very fragmented approach to loss prevention as so many different areas of their operations, including external partners, are handled by different individuals and departments. If retailers adopted an overall collaborative culture both internally and externally they would be far better placed to reduce losses and increase profits."

What remains clear is that whilst many retailers may try to collaborate to some extent they remain suspicious of its productiveness and wary of losing a competitive edge as a result of sharing information with each other. Ady Houghton though feels that this is beginning to change with retailers and suppliers starting to use well developed relationships as a basis for increased collaboration but feels there needs to be a greater understanding of criminality to really make a dint in the losses retailer suffer.

Houghton commented: "I have worked with my opposite number in other businesses where there has been an opportunity, over time, to create a relationship based upon trust. In particular we have worked with suppliers to discuss with them how factors such as perhaps packaging can make their products more susceptible to shrink. Nevertheless whilst this kind of pooled data allows a certain amount of self diagnosis, for a business to see where it could be weak, are retailers really geared up to beat the criminal? I am not sure that the retail sector has yet gained enough insight into the criminal mind to be able to effectively anticipate what the criminal's next move will be and get ahead of them in preventing that from happening. The true challenge for the retail sector is to gain insight into the criminal psyche so that they are in a position to accurately predict the where future losses are likely to occur."

About the Retail Fraud Study

The Retail Fraud Study was operated by Retail Knowledge, a leading industry expert, and conducted by internationally renowned research company Martec International, specialists in retail research, taking 600 hours to compile, interviewing loss prevention and e-commerce professionals from 100 of the top UK retailers totalling 42% of the UK retail market with a combined £141billion in sales and 50,000 stores. Participants included Tesco, John Lewis, Marks and Spencers, Mothercare and HMV. The report's findings are based on individual retailer profiles that examine:

• Corporate data: Sales broken down by store/online; average transaction value; number of stores; store openings planned in next three years; estimated number of tills.
• Technology Portfolio: Hardware and software systems used by retailers along with implementation dates, replacement plans and use of outsourcing in 13 application areas such as security cameras, source tagging, analytics and more.
• Plans/Priorities: organization comparisons in top areas of loss, how stock counting is conducted and which retailers share internal data with other retailers and law enforcement agencies.