Hybrid Platforms Trends Series - Retail Edition: Shrinkage

In part one of this series, we discussed the topic of sustainability, and in part two, we covered security and the impact of both on the retail sector.  

In this part, we are going to switch gears and look at the impact of shrinkage. As mentioned in part one, I was joined by Ian Scott (Independent Retail Consultant), Peter Critchley (UK CEO for Trison), David Dobson (Global Industry Director Retail, Intel Corporation) and Jane Liston (Retail Sales Manager, CDW). But we had to let one person escape per discussion topic to complete our Retail Trends filming. In this session, we released Peter and welcomed Ian back into the conversation. 

Retail Shrinkage 

So, what do we mean by shrinkage in the retail sector? Jane gave us her view on the topic to kick start the conversation: "Shrinkage is that loss that's being made whether it's through theft or, shall we say, things disappearing, which still is theft, really. It's just generally theft. It is a big issue for the retail industry. We see some really high figures about the impact it's having on operating costs. So, it's something that needs addressing".  

Jane added that there is a shift in perception from retailers and consumers that complicates the issue. " We've got a cultural shift happening as well, whereby often retailers will be forced to make difficult decisions on how to mitigate theft and whether it aligns with their culture.”  

For example, imagine an independent clothing retailer that locks its products in a glass cabinet. The cost vs benefit of this measure may be too high in this example, and so the retailer may decide to accept the higher risk of theft by leaving the products out.” 

In my mind, the challenge can be quite complex. Just because we can detect that someone's stolen an apple, does that mean we can justify the cost of stopping it? How much value does that one apple have? It might be a problem when a thousand people steal a thousand apples. But, what's the cost of enforcing all those individual points?  

Ian is worried about how accepted it has started to become. "What I'm finding fascinating here is that it has grown, as Jane has said, and there's a danger that it's almost becoming an acceptable part of business in certain areas. I think in California and the US, they misquote a law about it not being a crime unless it's $800. The moment that's advertised, people are thinking, well, I can steal $750 worth of stock." 

The problem of shrinkage is not just from consumer-based theft; it could also easily be in the supply chain; this was highlighted by David. "I believe the National Retail Federation in the US quoted a number and then revised the number because I think just in terms of positioning our statement here, theft is a huge problem for retail. But I think there were some other factors like there's this thing called Covid, and people weren't buying the right things, and they weren't putting them in the right place, and they lost track of inventory." 

Solving the issues with technology 

David believes we need to have practical and technology-based approaches to solve the challenge, and this triggered Jane to reflect on the extremes some of our customers have been going through and the negative overall impact that this can have on the consumer experience.  

"They've gone to such extreme levels to protect the stock to a point where relatively low-value items in the large pharmacy stores are all locked away. So, you must get a staff member to unlock it to buy a £5 lip balm, and there's not enough staff to do that. You're trying to protect the goods, but it's not staffed accordingly. So, there must be a massive impact on their revenue. And how sustainable is that, and how much is that impacting your actual sales?"  

This relates back to my apple thoughts earlier: How can we calculate that? And do you save more in protecting the stock than in lost sales because the consumer goes somewhere else where it's easier to buy? 

Ian made the point that not all products are equal and that tactics need to be more granular and thought-out. "But you will find it will differ for each category in the same store. Certain things will be high margin, high turnover right through to low margin, fast turnover or small turnover. So, the cost of the technology and the impact on sales will be different. So, it's not a one-size-fits-all. If you stick it on a counter, you may find that your theft goes up 10%, but your sales go up 40%. There is no simple one-size-fits-all all answer, even within the same retailer, with the same customer in the same shop, different categories are going to have different needs."  

There must be a route or a journey for retailers to start taking because there are technologies that can help in this area. But we're saying that it will be a multi-faceted approach rather than a single silver bullet that fixes the problem.  

David referenced our security conversation: "Also, it's what we discussed in the security session. It's not a one-and-done thing because we're discussing people, behaviours, and behaviour change. And, whatever you put in place to stop a behaviour, it may just migrate to a different type of behaviour. And, if don’t address that new type of behaviour very quickly, then you'll find that you've closed one door, and two other doors have opened." 

Jane reflected on the supply chain challenges we have been seeing: "I think you're also looking at that shrinkage within the supply chain, with how much goes missing from production to store or production to restaurant. We've been seeing some really high stats of what goes missing in that supply chain. There is technology with RFID and tracking so we can identify at what point something went missing but it doesn't stop the fact that the thefts happened at that point. It's about then how you identify the culprit and the action the business takes." 

I think that's where things like digital twins can start to play a part If you can model what that supply chain looks like, then yes, the RFID tag tells you that the product disappeared at this point. But how do you modify that supply chain to change the behaviour, to stop the shrinkage? That’s when the twin can help you explore the impact of change in a safe environment.  

Data-driven decisions 

We also need to be conscious of what drives consumer behaviour and why theft is important to appreciate.  

Ian reflected: "One of the worst categories in the US is the baby category and you need to understand the reasoning here: you suddenly have new parents who are going from two of them, both earning an income, to one of them earning an income with three mouths to feed. There's almost an inevitability that they're forced into a situation where they're having to make difficult financial decisions." 

David hit the nail on the head in talking about making data-driven decisions: "Being driven by data is so important in making those decisions. Going on anecdotes to solve this problem will not get you very far. That's one of the things where some of the digital technologies that we've talked a little bit about can give you that real insight as to what's really happening and how those behaviours are changing." 

David also added concern about the policies you set that would impact your staff and how they deal with these challenges in store: "What are you prepared for your employees to do? What's your employer's response to that information? And, you know, there's a couple of instances where retailers have had to or have chosen to fire staff because they've responded in the wrong way, either ignoring when they should have intervened or intervening when they shouldn't. You have that duty of care for your employees, but also making sure that they're safe, and also providing the right information to the people who should be making the right response."  

As we closed out the conversation, Ian and Jane had these closing thoughts: 

Ian: "It comes down to that interpretation of the data, finding the meaningful solutions and applications that suit your environment and your target audience."  

Jane: "From a CDW perspective, how we can help you on that journey with identifying those points where you are vulnerable and how technology used in the right way can help resolve that and improve the efficiencies and reduce your loss." 

My final thoughts are to make sure you have the data to make informed decisions and remove emotion from the conversation. This will allow you to get to the root cause as fast as possible. If deployed correctly, technology, people, and processes can massively impact the shrinkage challenge.  

To listen to our podcast on this topic visit the CDW OCTOPod