Lessons from the Leaders of Retail Loss Prevention
Despite growing investment in electronic article surveillance and other loss-prevention approaches, inventory loss in the United States has remained stubbornly high over the past 15 years, fluctuating between 1.54% and 1.95% of sales, according to the University of Florida’s annual National Retail Security Survey, with the average rate in 2006 being 1.59%. Longer supply chains, growing product assortments, and labor cuts have contributed to making loss prevention ever more challenging.
The lesson of five companies we studied—Target, Limited Brands, Best Buy, Gap, and CVS—isn’t that security people should arrest more thieves or spend more on technology, the approaches that have dominated retail loss prevention. While catching criminals may appeal to the former police officers who are so often hired to deal with this problem, success requires a companywide strategy focused on operational excellence. These companies have shown that demonstrating strong leadership, embedding effective procedures, and ensuring compliance can drastically limit situations where shrinkage can occur.
The companies in our study were recommended by a panel of specialists on the basis of their innovative approaches and their success in keeping shrinkage low. The average shrinkage rate of the five was 44% below the U.S. mean, and one company’s rate was 70% below. We determined that these companies tend to rely on nine practices in developing an effective approach to loss prevention.
Three strategic practices must first be in place:
- Establish senior management commitment to making shrinkage a priority, overseeing an action plan, allocating resources, and monitoring results. (Figures on inventory loss are a closely guarded secret at most companies, but one of the five in our study gives shrinkage data to outside financial analysts so that they can better assess the company’s performance.)
- Ensure organizational commitment from managers throughout the company; otherwise, any attempted solution will be short-lived. The loss prevention department’s role is primarily to lead a cross-functional effort to manage the problem continuously.
- Embed loss prevention at all levels. Employees throughout the company must take responsibility for reducing shrinkage. The company should see loss prevention as equal to sales in importance.
Rick Segel & Associates