When it comes to loss prevention (LP), many retailers continue to face serious challenges. According to the University of Florida’s 2006 National Retail Security Survey, annual retail shrink averages 1.59 percent of net sales – a figure that adds up to $40.5 billion a year for the industry. With the current economic crisis curbing consumer spending, the stakes are higher than ever for retail organizations to improve efficiency and focus on preserving, and hopefully enhancing, profitability through effective loss prevention programs.
Given these statistics and the critical need for retailers to leverage all opportunities to improve the bottom line, C-suite executives and the LP department must be on the same page in terms of priorities for protecting the organization. However, C-level retail executives may not see eye to eye with their LP management on how best to attack shrinkage. In fact, according to the results of
a recent Protiviti survey, LP management is not always working toward the same goals as those of corporate executives. Among the more notable findings in our study, which assessed current capabilities and areas for improvement in loss prevention:
- 57 percent of C-level executives view “planning loss prevention strategy” as an area needing improvement in their organizations, while only 12 percent of LP senior management note this to be a need.
- “Preventing internal theft” is considered by 60 percent of C-suite executives to be an area in need of improvement, yet only 18 percent of LP senior managers agree.
Challenges and Opportunities
While the C-suite has developed and implemented an overall business strategy that all departments in the retail organization – including loss prevention – are expected to follow, what they identify as being areas of concern may not necessarily align with the priorities of the LP function on a day-to-day basis. At the root of this problem is an overall lack of effective communication between corporate executives and LP management. This is due, at least in part, to a “silo mentality” within many organizations that hinders transparency and the effective exchange of information between the LP department and C-suite.
What are the consequences of a silo mentality? Many retailers make significant investments in their LP programs, devoting time and money to areas such as theft and fraud, shrink management, safety, training, and awareness. However, lack of alignment between the LP function and C-suite can undermine the overall effectiveness of these efforts, reduce return on investment and lower overall profitability.
Our Point of View
Given the current economic environment, it is imperative for retail organizations to utilize their LP resources and personnel in the most effective way possible. The results of our survey suggest that both corporate executives and LP managers at times become unnecessarily concerned about improving areas where the organization already has a high level of competency. This breakdown occurs due to a lack of awareness that the knowledge exists, a lack of understanding of the need for greater focus on a specific area, or perhaps most importantly, lack of proper communication between LP management and the C-suite.
More frequent and meaningful discussion about the alignment of organizational goals can improve the impact LP has on the bottom line. This should include creating a collaborative culture that enables LP management to be a part of the executive strategic planning process for loss prevention, rather than merely the implementers of an already agreed-upon approach.
In addition, LP management should take a fresh look at their activities to understand why corporate executives may be designating certain areas as priorities. LP management may not realize, for example, that broader business objectives are driving the need for greater focus on these areas.
Retail organizations also should encourage crosstraining opportunities for LP management. This will enable members of the LP team to learn about other functions and develop the insight and “big picture” mindset many LP professionals have yet to gain.
Above all, the C-suite and LP management must build and maintain an effective channel of communication.
By doing this, retail organizations will lessen the chance of devoting too much time and attention to issues that are not actually problems. A cohesive management team that addresses the agreed-upon
LP priorities, maintains regular communication on key issues, and receives adequate guidance and training will be better equipped and better positioned to achieve the desired goals.
How We Help Companies Succeed
Our Loss Prevention Consultative practice helps companies design and employ world-class loss prevention programs and practices. We help retail organizations identify, prioritize and manage risks to reduce cash and inventory losses and ultimately improve stakeholder value. We also develop and implement an array of cost-saving measures focused on both historical cost recovery and strategic loss reduction programs.
We can complement your existing loss prevention department or act as your outsourced provider. Cash losses and inventory shortage are just two areas our Loss Prevention Consultative practice can impact through our robust operational audits.
A large quick-casual restaurant chain was looking to implement a store audit and loss prevention function. From the corporate offices to restaurants, there was a high level of disbelief that theft was happening or that their controls were poor.
Protiviti’s Loss Prevention practice performed a four-week assessment of our client’s current status, defining both a gap and risk analysis, along with a recommended strategy for a go-forward program.
The project involved conducting stakeholder interviews, creating a statistical risk scorecard to determine the highest risk locations and visiting 30 of the chain’s restaurants for audits and internal theft investigations.
Our client estimates a $15 million bottom-line profit enhancement was achieved as a result of implementing Protiviti’s strategy and recommendations.