Understanding and Responding to Retail Risk Using the Hot Concept
Reflection on retail loss by professor Andrian Beck
Time to consume: 8 min
5 November 2020
As those with responsibility for managing retail loss on a daily basis will be fully aware, retail risks are not homogeneously spread across the business. Particular places, products, processes, and increasingly, certain retail innovations are much more vulnerable to lose than others. Identifying these ‘hot’ elements in the business can be a powerful way to enable increasingly busy loss prevention managers, operating in ever more complex environments, to focus upon the ‘vital few rather than the trivial many’. This idea has been defined as the ‘Hot Concept’ – a simple way for retail organizations to begin prioritizing what they do when it comes to managing various types of losses.
We are all increasingly aware that certain places may be riskier than others, such as certain parts of urban spaces. Within retailing, many companies now have some form of risk register for their physical stores, ranking them on a number of different factors such as retail loss history, levels of recorded crime in the surrounding area, number of incidents of violence, and so on. This is then used to prioritize security spend, bring store management attention to their relative position in the ranking and direct the activities of the loss prevention team.
Of course, hot places can also exist within particular locations – certain parts of retail stores can be more vulnerable to lose than others, such as hard to observe areas where shop thieves find it easier to secrete stolen items, or backroom areas where products are more likely to be stolen or damaged, such as the unloading bay. Overall, it seems that many in the retail loss prevention community are now becoming relatively well attuned to understanding how risk can vary by place and to use this information to inform their activities.
Equally, considerable research has been undertaken on trying to understand which retail products are more likely to be ‘hot’ in terms of their likelihood to be stolen. Academic studies on stolen goods have identified the key aspects that make some items more susceptible to theft than others. The acronym CRAVED has been used to describe the key attributes: Concealable (easy to hide when being stolen); Removable (easy to remove); Available (easily accessible); Valuable (either personally to the thief or to others who may wish to purchase it); Enjoyable (generally the product is enjoyable to own or consume); and Disposable (a ready market for the stolen item exists). While this model has remained relevant, new developments in retailing, such as self-scan checkouts have made it more complicated to identify which products are likely to be ‘hot, especially when the cause of the loss may be due to customer error rather than malicious intent.
While there is existing knowledge within the disciples of supply chain management, operations management, and total quality management on understanding issues that can generate problems in retail supply chains, relatively little of this work typically gets transferred across to the world of loss prevention to help them understand what processes may be generating losses within their sphere of influence. Work by the ECR Retail Loss Group found that there were five key forms of the process that were particularly hot: Product Movements (increases the risks of damage, delivery to the wrong location, wrong quantity, incorrect paperwork, etc.); Handling (damage, exposure to theft, loss of paperwork, etc.); Change of Form (reworking can cause loss of identification, damage, and wastage, etc.); Exchange of Ownership (as well as the risks associated with physical movement, processes relating to the transfer of information and money can also pose risks that may generate a loss, etc.); and Storage (increasing the potential risk of damage, theft, loss of value, obsolescence, etc.).
The final component of the Hot Concept relates to retail innovations. Understanding how and which retail innovations pose significant risks is challenging for loss prevention leaders – often they are introduced quickly and with little or sometimes no engagement with loss prevention teams, inevitably leading to insufficient knowledge and planning about how to manage any subsequent risks that emerge. A good example of a hot innovation is the self-scan checkout technologies that are now increasingly being used across the world. It seems clear, certainly in the Grocery sector, that this technology is now posing a considerable risk to increased levels of product theft. As levels of loss increase, responding to this evolving and increasingly important innovation is becoming a key priority for loss prevention executives.
Understanding the Value of the ‘Hot’ Concept
All organizations have a finite amount of resources to combat the problem of retail loss and this is likely to become even more acute as retail competition and complexity develop further. While in the past loss prevention managers have had to rely mainly upon common sense, personal hunches, and to a degree, retail mythologies to decide where to focus their attention, the growing availability of a wide range of increasingly fine-grained retail data points is enabling them to be much more considered in the approach that they now adopt. Moreover, as innovation continues at a pace, and becomes ever more important to the success and indeed survival of retail businesses, identifying which developments are likely to pose the highest risk will be a key role of loss prevention leaders – as will help the business to understand how these risks and their consequences need to be factored into future plans and financial projections. If the last 100 years of retail history has taught us anything, it is that few if any developments, be they new products, new ways of working or indeed transformations in the shopper experience, come without a modicum of risk – identifying and, where appropriate, managing those that generate the greatest risk should remain a cornerstone of the work of the loss prevention function.
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