The UK retail industry loses £2 billion in profit every year due to the well known but taboo issue of “shrinkage”. The loss of stock and money between the point of manufacture and the PoS is an age old headache for retailers. The reality is that the majority of the nation’s retailers actually expect and plan for shrinkage to happen. That is to say it is a budgeted and accepted loss. But why does the industry do this? In particular at the PoS it is effectively condoning staff and customer theft, fraud and error. Importantly what measures, practices and technologies can be put in place to reduce shrinkage, cut losses and protect profits?

Shrinkage

Shrinkage exists all along the supply and sales chain and as a result there is no single problem to solve and no single magic solution. With no root cause retailers group all the different elements of profit loss under the umbrella definition of “shrinkage” and write-off this general balloon cost from the bottom line. This non-specific label and perception of shrinkage makes it near impossible to truly identify how, where, and to what extent it occurs. Without a level of granular detail and understanding it is easy to understand why retailers allow an ‘acceptable level’ of this, in some cases, ‘invisible’ multifaceted, industry-wide problem to be swept under the carpet.

The key to solving the problem of shrinkage lies in bursting the all encompassing, non-specific balloon that gives shrinkage its anonymous face. In doing so retailers can pinpoint and target specific points of loss and put in place the right processes and procedures to keep their money on the bottom line.

Loss at the PoS

Arguably retailers are too distracted by trying to protect against shoplifting and more recently online payment and ID fraud. However, the PoS is a store operation that leaks millions of pounds in retail profits each year, but is not closely scrutinised by many retailers. As one of the most vulnerable links in the retail chain the PoS has numerous port holes that can constantly leak money. Many retailers spend six figure sums every year on CCTV, electronic tagging, and uniform and plain clothes security operatives to tackle shoplifters but make little or no investment to tackle internal fraud and collusion at the PoS. However, help is at hand.

Identifying how and where money is lost at the PoS is the first key objective in stemming the flow of profit walking out the door. The four main “usual suspects” of this profit loss are: system error – genuine failure or malfunction of applications, hardware and software; staff error – genuine operator error resulting from mistakes or poor understanding of the point of sale system; staff theft and fraud – malicious and intended criminal activity resulting in staff theft from the PoS; customer theft and fraud – criminal stealing and/or fraudulent activity at
the PoS.

Transactions fingerprints

Of course, having an idea of where profit is lost at the PoS  is just the beginning. These top four areas must be targeted with the right level of technology and expertise to collect the relevant data. With each transaction, a data fingerprint is left containing the “DNA” of that specific transaction. This fingerprint can be unlocked with the right technology and a new forensic-style approach.

From sales to refunds and discounts to exchanges, the ability to collect, analyse and interpret transaction information from the PoS enables retailers to pinpoint and tackle the specific errors and losses and turn profit loss into profit protection.

The forensic approach

By collecting the data or “fingerprints” at this granular level and then interpreting and interrogating the data, retailers can construct patterns, trends and relationships in all the activities at the point of sale. Using the right software tool to collect and interpret this data, retailers can extract highly specific levels of information required to monitor and track transactions. This identifies who is processing each transaction, where and when system and human error occurs and ultimately any criminal activity.

Collecting this level of data delivers more than just a summary of transaction activity at the PoS. Collating “fingerprints” with this forensic approach provides retailers with hard, irrefutable evidence to: successfully deal with the perpetrators of fraud; build automated reports to quickly highlight the known fraud patterns that have been identified; enable effective use of resource by providing quality evidence for the investigator to conclude the investigation in one visit; measure the results; identify weaknesses in policy or procedures; and recoup losses via the civil courts through the civil recovery process.
It is this forensic approach to targeting and combating profit loss at the point of sale that enables retailers to identify and address the problems with the appropriate solutions. From establishing staff training requirements to using the data analysis as a deterrent, taking a forensic approach breaks down a core element of shrinkage and gives retailers the power and process to protect profits and integrity.

This allows the profit protection culture to become more proactive than reactive and makes visible the invisible shrinkage which is usually swept under the carpet.

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