1. Introduction to ECR Europe and Shrinkage Adrian Beck Reader in Criminology University of Leicester, UK ECR South Africa, February 2006

2. ECR Europe Shrinkage Group Established in 1999 Made up of retailers, manufacturers and academics

3. The ECR Shrinkage Project Team

4. Purpose of ECR Shrinkage Group Raise awareness of the problem of shrinkage Co-ordinate and sponsor cutting edge research Encourage companies to address the problem Promote a more systematic and systemic approach to dealing with the problem (the ECR Shrinkage Road Map)

5. Guiding Principles –Engage senior management and prioritise shrinkage: it is a consumer problem Choice and ranges restricted High margin products not listed Products get locked up –Consumers frustrated Shelves go Empty –New item impact reduced –Consumers switch stores or brands –Lower consumption

6. Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate

7. End to end accountability –From store and product design to reverse logistics Data accessibility, timeliness and granularity –Mining the data warehouse Monitor and generate transparency –Stock counting –Process audits Incentivise staff –Retailers with incentive schemes had lower levels of shrinkage

8. Data mining... 10p report 14,836,947 products £12,000,000 shrinkage Cashier error?

9. Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate Promote inter and intra company collaboration

10. Who needs to be involved? Manufacturer –Design team –Production –Supply Chain –Marketing –Sales Retailer –Buyer/Merchandising –Loss Prevention –Supply Chain –Store Operations Environmental agency

11. BeforeAfter End to End Solutions

12. Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate Promote inter and intra company collaboration Adopt a systemic and systematic approach

13. ECR Shrinkage Road Map CORPORATE POLICY Map & Measure Develop Solutions Implement Evaluate Plan Analyse Wake Up Call!

14. Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate Promote inter and intra company collaboration Adopt a systemic and systematic approach Unlock the value of the 'hot' concept

15. The Hot Concept Hot concept ProductsProducts PlacesPlaces PeoplePeople ProcessesProcesses People Places ProductsProcesses

16. Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate Promote inter and intra company collaboration Adopt a systemic and systematic approach Unlock the value of the 'hot' concept Focus on process failures first

17. Focus on Process Failures First Removes opportunity –Receipt process –Returns Masks malicious activity Delivers –Quick wins –Cost effective wins –Sustainable solutions

18. Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate Promote inter and intra company collaboration Adopt a systemic and systematic approach Unlock the value of the 'hot' concept Focus on process failures first Encourage innovation and experimentation

19. Keep ahead of the game Initiate……. –Pilot Studies on new ideas –Road Map projects with suppliers –Benchmarking against industry surveys Experiment….. –New solutions –New store layouts ECR survey showed that retailers who innovated and experimented most had 20% lower shrinkage

20. Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate Promote inter and intra company collaboration Adopt a systemic and systematic approach Unlock the value of the 'hot' concept Focus on process failures first Encourage innovation and experimentation Document learning and disseminate success

22. The ECR Europe 2004 Shrinkage Survey Adrian Beck Reader in Criminology University of Leicester, UK ECR South Africa, February 2006

23. Process failures Inter- company fraud Internal theft External theft Shrinkage Defining Shrinkage

24. What Does Shrinkage Mean? Inter-Company Fraud Process Failures Internal Theft External Theft  Deliberate Under/Over Delivery  Invoice Errors  Quality and Weight of Items  Inventory Errors  Promotion Errors  Pricing Errors  Stock Going Out of Date  Damage to Stock  Product Delivery/Scanning Errors  Theft of Stock and Cash  ‘Grazing’  Collusion  Shoplifting  Till Snatches  Returning Stolen Goods  Burglary  ‘Grazing’

25. What Does Shrinkage Mean? Inter Company Fraud Process Failures Internal Theft External Theft MALICIOUS NON MALICIOUS Degree of Intent Probing Systems Exploiting Loopholes Mistakes Poor Planning Bad Management

26. Background and Methodology Last survey in 1999 Need for a new benchmark Stock loss calculated at retail prices

27. Background and Methodology 26 countries surveyed (21 last survey) 250 retail companies and 44 manufacturers/suppliers contacted Total FMCG sector valued at over €1 trillion Sample represents 13.7% of retail companies with a combined turnover of €137,214,920,000

28. Counting the Cost Sector % of sales Value (€ billions) Retail1.8418.5 Manufacturer0.575.7 Total2.4124.2 Total loss equates to €66 million per day

29. Retailer’s Missed Profit Opportunity 0% 1 % 2 % 3 % 4 % 5 % CurrentPotential Average Retailer Margin Average Retailer Profit Margin 2.99% 1.84% Average Retailer Shrink Margin 4.83% 62% Margin Growth

30. Shareholder Value Net IncomeShareholder Value €1 Incremental Sales € 0.15 € 3.00 Calculated by the Cranfield School of Management based upon the following assumptions Sales Margin = 15%; Inventory Holding Costs = 20%; Net Overhead Cost = 30%; Share Price is a Multiple of 20 on Net Income.

31. Shareholder Value Net IncomeShareholder Value €1 Incremental Sales € 0.15 € 3.00 €1 Inventory Reduction € 0.20 € 4.00 Calculated by the Cranfield School of Management based upon the following assumptions Sales Margin = 15%; Inventory Holding Costs = 20%; Net Overhead Cost = 30%; Share Price is a Multiple of 20 on Net Income.

32. Shareholder Value Net IncomeShareholder Value €1 Incremental Sales € 0.15 € 3.00 €1 Inventory Reduction € 0.20 € 4.00 €1 Shrinkage Reduction € 0.70€ 14.00 Calculated by the Cranfield School of Management based upon the following assumptions Sales Margin = 15%; Inventory Holding Costs = 20%; Net Overhead Cost = 30%; Share Price is a Multiple of 20 on Net Income.

33. Shrinkage Retail Iceberg 51% 49% Unknown Loss €9.5 billion

34. Impact of the Iceberg Lack of visibility Lack of awareness –When did it happen? –Where did it happen? –How did it happen? –Who was responsible? Lack of accountability Prioritisation of the most visible/acceptable

35. Location of the Problem €5.7 Billion€1.2 Billion€17.3 Billion TOTAL €24.2 Billion 24% Manufacturer Distribution 5% Retail Distribution 71% Retail Stores ++=

36. Causes of Retail Stock Loss

39. Retail Company Co-operation

40. Causes and Spending on Shrinkage

41. Other Survey Highlights Companies with a corporate policy Companies that prioritised stock loss Companies that provided bonuses for good stock loss results Companies with higher levels on inter-company co-operation Companies that carried out a greater number of shrink reduction projects….. … All had lower levels of stock loss

42. 6 Steps to Successful Shrinkage Reduction Written company policy  High levels of intra-company co-operation  Prioritise the problem  Incentivise staff  Conduct regular shrinkage reduction projects  Make use of the ECR Europe Road Map 

43. For a free copy of the final report email: bna@le.ac.uk

45. Exploring Risk: The ‘Hot’ Concept Adrian Beck Reader in Criminology University of Leicester ECR South Africa, February 2006

46. Background Risk is not evenly distributed. It is focussed on particular products, places, people, processes Crime hot spots 3% of locations in some cities account for 50% of recorded crime Hot products Some products much more at risk than others

47. Hot Products Example

48. Hot products in the Netherlands

49. What Causes Products to be Hot? Concealable Removable Available Valuable Enjoyable Disposable

50. Background Supply chain hot spots Risk exists at particular points, e.g. delivery to store Hot People –Marginalised, unmonitored, temporary, known offenders

51. Value of Understanding the ‘Hot’ Concept Avoids spreading valuable resources too thinly Focus on the vital few amongst the trivial many Rapid impact Greatest return Possible diffusion of benefits

52. Hot Store Mythology Social Geography ‘Bad areas cause high shrinkage’ Management ‘Good results follow good managers’

53. The Hot Store Project: From Myth to Reality ECR project launched to understand the issues relating to store losses Research questions: Across Europe, what is the profile of store losses? What makes a store ‘hot’?

54. MethodologySurvey: –Contacted a sample of European retailers –Gathered shrink details for all outlets Case Studies: –4 companies: Ahold (Czech); Feira Nova (Portugal); Tesco (UK); Wickes (UK): –Collected estate-wide data –Visited 4 stores per company (2 ‘good’, 2 ‘bad’) –Interviewed key store staff

55. European Store Shrinkage Rate

56. Estate-Wide Findings Strong link between high staff turnover and shrinkage Older stores had higher levels of shrinkage Length of time manager had been at the store associated with low shrinkage Length of time manager had been at the store associated with lower staff turnover Company risk categorisation was not helpful

57. Hot Stores Attributes Store manager and team see shrinkage as their responsibility BUT blame the environment, the staff, outsiders, the company… ‘there is only so much we can do to control the situation’ (CS 2,1) ‘the stock deliveries are never correct – we always inherit the problem’ (CS 4,2)

58. Hot Stores Attributes Company doesn’t make manager accountable for losses at the store ‘when managers move store they are not held accountable for what’s left behind’ (CS 1,1)

59. Hot Stores Attributes Company procedures are not followed ‘we should be doing 70 staff searches a week but we only ever manage 40’ (CS 4,1) ‘we haven’t been having the weekly team shrinkage meeting’ (CS 4,2) ‘staff don’t fill in the wastage reports properly’ (CS 4,3) ‘the backroom area always looks like a bomb site’ (CS 2,4)

60. Hot Stores Attributes The manager does not provide support, leadership and control ‘I don’t trust my staff and they don’t do what I tell them to do’ (CS 2,4) ‘there is collusion between the security guards and the cashiers. The cashiers are incompetent. The head of the cashiers knows what to do she just doesn’t do it.’ (CS 4,3)

61. Hot Stores Attributes Store management does not know the extent of the problem ‘I would have to say that Mach 3 is highly stolen in this store because that’s what everybody in the industry says’ (CS 1,2) ‘I can never reconcile my inventory…’ (CS 3,4) ‘we don’t keep a record of security incidents in the store – we tell head office and then throw the data away’ (CS 1,2)

62. The 4 ‘A’s to Preventing Stores Becoming Hot A ccountability ction ttitude udit A A A

63. Accountability –The manager owns the problem and prioritises it all day, every day ‘keeping my eye on the ball’ (CS 4,2) –The manager is highly committed to reducing shrinkage ‘as important as sales’ (CS 4,1) The 4 ‘A’s to Preventing Stores Becoming Hot

64. Action –Store context needs to be understood and appropriate actions taken to meet the challenges ‘this is a tough store but we know it and develop plans accordingly’ (CS 4,4) –All procedures must be adhered to consistently: they must be robust, standardised and institutionalised ‘we know what we need to do – good procedures already exist’ (CS 2,3) –Backroom areas - keep them neat and tidy as a message to all staff ‘there is no reason why the backroom shouldn’t be as clean as the shopfloor’ (CS 2,3) The 4 ‘A’s to Preventing Stores Becoming Hot

65. Good management is the solution Source: Ahold Hypermarkets: Czech: 2004

66. Attitude –Build a cohesive management team ‘Vision. Mission. Obsession’ (CS 3,1) ‘You need the right people with you and for you. It’s about having a common goal and sharing it’ (CS 4,3) –Understand the staff, be consistent and recognise when staff need help ‘You have to be involved and talk to everyone in every department every day’ (CS 1,3) –Be supportive and flexible ‘XXX has his finger on the pulse. He’s a manager, you don’t get many. Some people put the badge on but that doesn’t make them managers’ (CS 1,3) The 4 ‘A’s to Preventing Stores Becoming Hot

67. Audit –Access and use high quality reliable data in order to understand the problems and how they change over time ‘Measure success and celebrate when good’ (CS 4,3) ‘We have a daily control routine and update the store team weekly on results’ (CS 1,2) The 4 ‘A’s to Preventing Stores Becoming Hot

68. These Findings Suggest That... High shrink in hot stores is mostly a function of poor management and lack of adherence to procedures The environment affects shrinkage but good management responds to the context and develops effective strategies to meet the challenge

69. The Hot Concept People Places ProductsProcesses

70. For a free copy of the final report email: bna@le.ac.uk