Managing Security in Retail Offline and Online

Contents

Part – A – Managing Security Offline

Introduction

Method Employed when calculating Shrinkage

The Global Retail Theft Barometer

MOPI v’s International Comparison

Sources of Shrinkage

MOPI Policy and Procedures
Staff Awareness, Communication and Training

Technology
Smart Displays
Radio Technology Identification (RFID’s)

Recommendations and Conclusion

Part B – Managing Security On-Line

Introduction

The Threats Facing the B2C E-Commerce Company
Denial of Service (DOS)
Ransomeware
Viruses
Worms
Bots and Botnets

Fully Integrated Protection Systems
Firewalls

The Balance of Trust, Loyalty and Security
Building Trust
Being Transparent
Publicize Failures
Be Likeable and Humanize
Get External Proof
Security

Conclusion

References

Part – A – Managing Security Offline

Introduction

Shrinkage and retail crime are major issues for retailers, having significant impact on net profitability of stores, products and retail businesses alike. Only a small minority of crimes against the retailer are detected or witnessed at the time or later: the value of losses a retailer faces over a period is normally calculated as shrinkage (or loss of inventory). Within this calculated figure is the inclusion of losses not criminally related such as wastage, pricing errors, and a range of identification and accounting errors and only represents an indirect theft measure. Crime losses from burglary, robbery, and major frauds are not usually included in the shrinkage estimate. (Bamfield, 2004)

Although shrinkage being a major cost to retail, it has received very little academic research or discussion. This is due in part to the inconsistencies in approach by different countries and companies and an unwillingness to share sensitive information, making it difficult to compare and analyse output.

For the purpose of this report, the focus will be on a segment of Musgrave operated stores (MOPI), mainly located in the greater Dublin area. This comprises of 22 stores, making it is possible to plot trends between them all and gauge comparisons under different criteria.

Part A reflects on offline managing security in the bricks and mortar environment firstly this report will look at how shrinkage is calculated how it is measured on a global scale and how that measures against the name group of stores. It will then go into the named company’s policies and procedures and highlight improvements that can be made and strengths that already exist. After reflecting on some useful technology solutions, it will close out Part A by offering recommendations and conclusion.

Part B of this report will look more at combating security on the online environment, by firstly reviewing the types of threats faced B2C e-commerce companies, secondly understanding what a fully integrated protection system is. Finally it will look at the balance of trust, loyalty and security and provide a conclusion on security online.

Method Employed when calculating Shrinkage

The method employed within the MOPI stores is the same generally used across much of the retail industry. This involves the physical counting of stock four times a year (quarterly) and the result of that count being applied to a formula to calculate loss. The formula applied when calculating stock loss is:

Retail Shrink = Optimal Retail Value or Income – Actual Retail Value or Income

This gives MOPI the value in monetary terms, but the company evaluates performance based on the percentage of overall sale’s; this is further calculated to be:

Total Losses / Total Sales = Retail Shrink %

MOPI uses this percentage figure to compare stores within the group against each other, regardless of turnover and put stores into peer groups.

Areas of high importance are counted more regularly such as high value products and fresh departments. Fresh departments are counted on a bi-weekly basis and reported on through margins for analysis. The reason for this is that they can be tracked closer and intervention can be taken when an issue arises to minimise loss. High value items, also known as hot products, are generally high value, highly desirable, easily concealable and easy to sell on, are also counted bi-weekly. (Clarke, 1999)

Understanding how to calculate shrinkage in retail is important, understanding how to impact and control these results is even more important as it can impact company profitability. Controlling retail shrinkage is one of the key aspects of being a successful retailer.

Brittain states that, shrinkage is a much more complicated problem than simply accounting for the theft of merchandise and the direct loss of profit, its about inventory control, which involves the management of the supply, accessibility, storage, and delivery of the company’s goods. As a result, shrink management strategies require a multifaceted approach in order to successfully manage the process. This is an important concept for every retail manager to learn and understand and will have a direct impact on the company — and individual store – performance. (Brittain, 2017)

The Global Retail Theft Barometer

The Global Retail Theft Barometer is the first and only global research on the cost of shrink, comprised of shoplifting, employee or supplier fraud and administrative errors. The study, launched originally in 2001 in Europe by retailer’s. Demand was expanded in 2008 to Asia and the Americas, providing data to help retailers around the world benchmark their performance against averages for specific category groups, markets and geographies. This research was conducted by Ernie Deyle; a leading expert in retail loss prevention: and ‘The Smart Cube’; a global professional services firm that specialises in custom research and analytics services to corporations, financial services and management consulting firms globally. The report itself was commissioned by Checkpoint Services (Checkpoint S. , 2015).

The last time that Ireland was part of the survey was 2010 when the Global Retail Theft Barometer indicated that the global economic recession was a major contributor to a world-wide spike in shrink rates. The 2010 survey had 1,103 respondents from retail providing information relating to shrink, relevant to the period from July 2009 until June 2010. This is widely believed to be when many regional economies stabilized and resumed growth after the economic collapse. A key finding of the report is that Global shrink was at $107.3 billion (US) or 1.36% of global retail sales. Ireland in this report had a shrink percentage of 1.32 making it 0.4% below the global average. In the 2015 report shrinkage had fallen to 1.23% for global sales although Ireland was not represented in this survey. (Deyle, 2015)

MOPI v’s International Comparison

As Ireland was not part of the 2015 research, we will compare the results in MOPI to the shrink average in the UK for this period. Note that this is a general comparison as the research dates are from July 2014 – June 2015 and the MOPI results are 2015, also the UK is taken as our most comparable neighbor as our economies are very intertwined, although the scale of the UK market is much larger and would perhaps provide lower % in terms. In this instance the UK’s shrinkage as a percentage of sales was 0.89% but if this is broken down further to supermarket and grocery retailers as a category this comes in at 1.01% of sales. (Checkpoint, 2015) MOPI’s shrinkage for a similar period was 1.15%. Both are below the global average of 1.23%. Since 2015 however, MOPI shrink has improved considerably with a 2016 company average of 0.98% and the current year to date (YTD) running at 0.64%. There have been numerous internal work-streams formed to work on this improvement which will be discussed further on.

The research from 2015, highlights in the UK that within food retail the hot products most susceptible to shrinkage are beers/wine/spirits (BWS), cheese, and fresh meat and within the health and beauty element of the store razor blades and creams. (Checkpoint, 2015) In relation to MOPI these categories would be similar problem categories with the exception of cheese. BWS would be average at 1.5% YTD down from 1.75% in 2015; Meat is 1.0% YTD down from 1.4% in 2015. Two other problem categories within MOPI are Baby which has been consistently high at 1.9% since 2015; and Bread/Cakes at 1.25% YTD which is down from a high of 4.2% in 2015.

Sources of Shrinkage

In relation to the global perspective 2015 the barometer report breaks shrinkage out into four categories of sources. It cites dishonest employee theft to be the highest factor at 39%; followed by shop lifting at 38%; admin/non-crime loss at 16%; and supplier fraud 7%. This conflicts with the UK part of the report which illustrates that admin and non-crime loss accounts for 40% of the loss. It further illustrates that shoplifting accounts for 26%; employee theft 25% and supplier fraud at 10%. (Checkpoint, 2015) The sources outlined in the 2015 barometer report mirror the categories discussed by Chapman under categories of shrinkage, which are outlined as process failures, internal theft, external theft and inter-company fraud. (Chapman, 2006)

The improvements that have been made across the MOPI business in the last 3 years can mainly been accredited to the improvement made in the administration/non-crime loss aspect of the business. A good example of this can been seen in the bread/cake shrinkage which improved from 4.2% to 1.25%. This has been through the standardization of the product being sold. MOPI operates a scratch bakery in approximately 85% of the stores, it was found that not all stores where following the correct product information set out in the guides (PIG). A scone that was being sold in one store was twice the size of a scone being sold in another. A work-stream was initiated centrally to visit all stores and revisit the guides and make improvements to standardize range, this included in some cases the commissioning of new plant or equipment which was fit for purpose to achieve correct weights and measures. A further intervention was to slice, bag and tag all in-store produced products to ensure it went through the checkouts under the correct label.

Other aspects of improvement in this source was better administration in terms of logging paperwork/dockets and returns processes and has led to product being accounted for correctly.

MOPI Policy and Procedures

MOPI doesn’t necessarily have an outlined security policy but a number of procedures that are followed and audited upon. These include cash office audits; key control logs; daily security checklist; arrest and recovery records; colleague check records; security lockdown checklists; intruder alarm logs and checks; and building security checklist. These procedures are audited on a quarterly basis by a member of the central operations team.

This audit also captures other aspects of the processes including staff awareness and communication and training. The problem with this is the lack of consistency around afore mentioned checklists and logs. Whilst they must be carried out, on occasion something else takes precedent, and the checklist will take a backseat for a period. Also, the number of colleagues that are specialized on the complete process is very few and can make is difficult to maintain the process end to end.

Staff Awareness, Communication and Training

Firstly, hiring the right colleague can reduce shrink by 13%. Things like background checks, previous employment verification, and written integrity surveys help ensure a more honest employee. (Park City Group) In some cases, at store level these checks are not thorough enough.

Once a colleague is on-board, an important pillar of ensuring awareness around shrink is good communication. As set out by Quirke 1996, the internal communicator should be trying to link communication to what is at the top of their agenda. In order to create awareness and understanding at a shop floor level, communications need to be clear, simple to understand and quantify relatively to the colleague. (Quirke, 1996) This is done in MOPI through a shrink communications board accompanied by shrink huddles instore. The communications board will hold the usual information such as value of shrink, percentage, and breakdown of information by departments. In order to make colleagues understand the value of missing stock it is quantified on the communication board as simply the number of baskets of shopping leaving the store for free. Example, if a store has a quarterly loss of ten thousand euro and an average basket of fifteen euro this is displayed as 667 baskets leaving the store unaccounted for. The huddles bring light to daily issues that can be affected to improve results. It is also a means of creating awareness amongst colleagues of the who, what and when and in many cases colleagues can themselves highlight and communicate back any issues they have seen themselves. Again, the main downside to this is having huddles on a consistent basis or reaching every colleague in the store due to operating times or colleague rostering. The main focus is on educating the key colleagues and this has a trickle-down effect. This is quite strong within the MOPI stores.

Training is extremely powerful and cost-effective investment by any organization, but only if it is implemented to match and compliment the needs of the business. (Denby, 2010) In MOPI this training is geared towards colleagues understanding the processes in their own area of the store, to achieve results by individual departments, when a colleague receives on the job training on how to process waste or transfers they build up the skills set and then graduate on to more complicated processes such as transfers etc. This is developed through experience first in one department and then they may move to another department were although most of the processes are the same it’s some of the principles that are different. One thing that colleagues probably don’t get, is a fuller understanding of what the implications are for not following procedures correctly. This could be something that is explored further.

Technology

Smart Displays

Smart display systems, although currently used mainly in electronic goods stores, are a useful tool that help prevent stock loss. This would be very adaptable for food retailers and could primarily be focused on hot products. This would help lower the exposure for retailers by minimizing the stock loss to one or two items at a time. There are many live examples in the industry were perpetrators clear shelves of high value goods and are gone in a matter of minutes. This technology allows for high theft products to be displayed openly rather than locked up. If several items are taken from a display, the smart system triggers an alarm or a signal to a loss prevention person who may be able to stop thieves before they leave the store. (Gregory, 2013)

Radio Technology Identification (RFID’s)

RFID’s come in the form of chips embedded in product tags or packages. These chips contain product information and enable retailers to track items using their stock control system, so merchants can gain real-time inventory visibility and accuracy. (Nicasio, 2017) The technology can also help retailers catch shoplifters. If someone attempts to walk out of the shop with RFID tags still attached to the merchandise, your store’s security sensors could go off and alert your staff. Within MOPI this technology has been rolled in a small number of stores as a trial. This works by the store being able to attach small metal tags to products and this will alarm if it passes an antenna without first going through the correct checkout procedure that will disarm the tag. An example of this being applied live in the store, is if a customer requests a large amount of fillet steak at the butchers counter, and the butcher is suspicious, they can attach a discreet tag unknown to the customer. If this passes the proper checkout process the customer is none the wiser but if the product doesn’t an alarm will go off, then the customer can be apprehended. This has sometimes failed to deactivate and could lead to an embarrassing stoppage but if the stoppage is dealt with by the security in the correct manner there is generally no issue.

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