Professor Adrian Beck University of Leicester, UK Total Retail Loss: Developing a Global Standard for Measuring Loss in Retail Organisations Project Update and Discussion

BACKGROUND Little consensus on what constitutes retail ‘loss’. The term ‘Shrink’ is widely used across the world but no internationally agreed definition exists. Rapidly changing nature of retailing requires a reconceptualization of how retailing defines loss. Role of LP teams needs to change to reflect growing business complexity.

 Shrink definition varies enormously between companies, sectors and countries – it even varies within some companies!  What is included, excluded? Unknown loss? Known loss? Process errors? Cash Loss? Theft? Non Theft?  Also little agreement on how shrink is measured  Retail?  Cost?  Cost Plus? WHAT’S IN A NAME? Mark downs? Vendor fraud? Losses from out of stocks? Damage? Wastage? Till errors? On line frauds? Voucher scams? Counterfeit notes?? Missed returns? Customer compensation? In-store use?

WHY IS THIS NEEDED? This ambiguity of definition: Makes benchmarking unpredictable, unreliable and unhelpful Blurs boundaries of accountability Fragments control processes which provides opportunities for theft Can create a culture of ‘acceptable’ loss Growing retail complexity requires a radical review of what generates loss. Huge opportunity to identify the true cost of loss – realise the size of the profit growth opportunity ‘locked’ within the business. Growing budget pressure requires a better understanding of where to prioritise LP spend. Opportunity to make greater use across the business of the loss management expertise within LP teams.

METHODOLOGY Review of existing literature. Meetings with retailers Electronic survey of retailers Retailer case studies to populate new model

NEXT STEPS Roll out of project to US retailers – broaden buy in and improve applicability of model Write interim report to update European retail community Prepare for broader global survey of Total Retail Loss

FEEDBACK AND QUESTIONS Key questions raised by electronic survey Opportunity for this group to contribute to the process

External Theft Internal Theft Internal Theft Cash Loss Counterfeit Notes Voucher Scams Staff Discount Abuse Waste Damage Out of Stocks Mark Downs Pricing Errors Customer Compensation Missed Returns In-store Use Internal Theft Vendor Fraud 3rd Party Logistics Theft Waste Damage Product Contamination Criminal Damage Burglary Bomb Threats Natural Disasters Health & Safety Fire Corporate Fraud Currency Exchange Losses Demonstrations Online Fraud Customer Guarantees Unplanned Sales Total Retail Loss Known Operational Losses Unknown Operational Losses Supply Chain Losses Corporate Liabilities Corporate Policy Losses Malicious Non- malicious Malicious Non- malicious

Total Retail Loss How to measure loss? Retail Prices1 Cost2 Cost Plus0 Both (Retail and Cost)2 Should the word ‘retail’ appear?

Total Retail Loss Known Operational Losses Unknown Operational Losses Supply Chain Losses Corporate Liabilities Corporate Policy Losses I would go for Corporate Liabilities, Corporate Policy Losses, Supply Chain Loss and Store Loss. Split Store loss into Malicious, Non- Malicious, Unknown.

External Theft Internal Theft Internal Theft Cash Loss Counterfeit Notes Voucher Scams Staff Disc/Loyalty Card Abuse Waste Damage Out of Stocks Mark Downs Pricing Errors Customer Compensation Missed Returns In-store Use Total Retail Loss Known Operational Losses Unknown Operational Losses Supply Chain Losses Corporate Liabilities Corporate Policy Losses Malicious Non- malicious We make an assumption here that the offending staff member has not been caught during their first offence. We assume they make up some of our Unknown Losses. “Loss Value of Incident” *15 [The average amount of times they have committed the same offence without being caught] Counterfeit Vouchers? Voucher & Coupon Scams? Food Surplus - A few other retailers that, like us, provide food that would be waste to charities (who sell the food on at a reduced rate to the poor for want of a better word). Whilst this is a loss, I believe it should come under a separate section to waste as although it is actual loss it is also Brand enhancing. How do we make this comparable? Should we be including non malicious cash loss?

Internal Theft Vendor Fraud 3rd Party Logistics Theft Waste Damage Total Retail Loss Known Operational Losses Unknown Operational Losses Supply Chain Losses Corporate Liabilities Corporate Policy Losses Malicious Non- malicious I am confused as to why this is called out as separate line Feels like there should be more here....one I can think of would be shortage claims / credits given to the stores. Some retailers don't allow for this but if a pallet does not arrive, and the DC cannot find, then the store has to be credited and the retailer needs to guess what happened to that pallet. Do we need to capture unknown loss here as well?

Product Contamination Criminal Damage Burglary Bomb Threats Natural Disasters Health & Safety Fire Corporate Fraud Currency Exchange Losses Demonstrations Online Fraud Total Retail Loss Known Operational Losses Unknown Operational Losses Supply Chain Losses Corporate Liabilities Corporate Policy Losses Include counterfeit in this category Is criminal damage the same as vandalism? Should it be trying to measure reputational damage costs?

Customer Guarantees Unplanned Sales Total Retail Loss Known Operational Losses Unknown Operational Losses Supply Chain Losses Corporate Liabilities Corporate Policy Losses Not relevant to us; moving to measure these

DISCUSSION POINTS How does this fit with your organisation’s current thinking on measuring loss? How measurable is this typology in your organisation? In what ways can it be further improved?