Traditional LP functions have been significantly reduced or can no longer be afforded. LP is dead… Long live Risk Management
Here are eight important areas of opportunity that modern Risk Management teams should seize with alacrity
Retailers are operating fewer trading stores and head office locations.
Businesses are becoming ever more reliant upon omni-power over traditional trading.
The result is that the old style of asset protection, which we will characterise as “Loss Prevention,” is to all intents and purposes… finished!
However, despite the strong fiscal headwinds, colleague reductions and knowledge losses in businesses across Europe, I believe that the opportunity for Risk Managers within a Total Loss model are vast. They just need to seize the opportunity and show their value to their businesses.
Here we look at eight areas of omni-channel retail that are currently not being fully embraced by the Risk Management profession, despite the fact that they are critical to the success of retailers in the post pandemic era…
1 Total loss excellence
Many Risk Management departments have become victims of their own success.
I remember old school LP departments being jokingly referred to as “The Sales Prevention Department” by their colleagues. However, that was a long time ago. Nowadays the modern Risk Management department not only permeates every channel in the omni-channel retail spectrum, but it acts to facilitate transactions in an ever more frictionless customer journey.
The problem with facilitating this frictionless journey is that people – important people – start to forget why you are there in the first place. Then questions start to be asked like “If our shrink is so low, why do we need such an expensive loss prevention team?” Perhaps Risk Managers should take note of an old, American rhyme…
The codfish lays ten thousand eggs,
The homely hen lays one.
But the codfish never cackles
To tell you what she’s done.
And so we scorn the codfish,
While the humble hen we prize.
Which only goes to show you
That it pays to advertise.
One of the key opportunities for Risk Managers is to effectively communicate the benefits that their team are contributing on a daily basis and what life would look like for the business without them. Because if your shrink is less than 1.0% for a multi-billion pound business, and you don’t know any better, then why do you need an LP team at all!?!
2 Omni-channel growth
With omni-channel retail comes omni-channel crime. In many respects the internet has done more to encourage criminal acts against retailers than any other factor. In the quest to create frictionless omni-channel retail environments for customers retailers have, almost inevitably, created a plenitude of opportunities to incur loss through criminal acts, errors and omissions.
As the pressure is on to provide consumers with a shopping experience individually tailored to their preferences, processes are constantly evolving. Here there is a massive opportunity for Risk Managers to redefine their departments and contribute spectacular savings on an inter-departmental basis, from Finance and IT to Logistics and Operations. To reinforce their importance to the business Risk Managers should be embracing these new developments and pro-actively extending their remits.
3 Operating cost increases
In 1973 the German economist, E.F Schumacher published “Small is beautiful” a philosophy that is perhaps more relevant today than ever. In his treatise he warned about the use of natural resources as if they were expendable and could never be used up, when actually they should be seen as capital and so scarce. He also wrote about the tendency of large commercial enterprises to become more wasteful the bigger they grow notwithstanding the economies of scale that they could achieve. And this is certainly something for Risk Managers to take note of 50 years later…
As businesses scale up, so operating costs increase. And simply put this is because, in a Total Loss model of loss prevention, waste goes up and errors increase. Areas of loss may not increase all that much as a percentage of operating costs. However, as an actual amount of saving what was once not worth taking steps to reduce is now sufficiently significant that it is worth putting resources into. This may be as simple as systems breaking down under stress and allowing errors to be made. It might be more sinister and the growth in an activity, or introduction of a new one, that now makes that part of the business an attractive proposition for ORC where previously it was not.
4 High Street decline
The High Street is in decline and physical estates are being reduced, despite protestations by many leading commentators that shops will become more important, in terms of brand immersion and fulfilment, than ever before. For now at least, many retailers are choosing to reduce the number of shops they operate. Just look down any High Street and you can see it. However, this is an area of opportunity for Risk Management.
Whether the business is downsizing or in administration, a respected brand is probably the biggest asset that any business can have. What does it say to passing footfall when shops are left dirty, unscreened and uncared for. Looking at a dilapidated building with your logo on is not a good advertisement for your business. Neither is an unmonitored alarm left ringing, rubbish in the doorway uncollected or the exterior being covered with graffiti or posters for the latest rave.
Risk Managers need to act as brand guardians over closed stores and at very least make it clear that the building is no longer the responsibility of their brand and at best, make sure it is a great advertisement for the rest of the business.
5 Buying habit changes
There was a time when people did the weekly shop and would travel to the supermarket once a week. Then research showed that planning for a week was not so popular as impulse purchases and short term planning. So much so that a family of four was making 27 visits to varying retail formats in one week. Businesses responded by opening 24 hours a day and in a multiplicity of small locations. Then Covid hit.
Now people plan for a weekly shop because of the hassle and health risks associated with visiting a store. Buying habits have changed…
Partly because of evolving retail models and partly because of the pandemic, but the way people are shopping is changing. This is a very real threat for businesses that often myopically concentrate on businesses similar in size and offering to themselves, when actually they should be looking at a more divergent set of retailers when undertaking ongoing competitor analysis.
Risk Managers could be looking at the changing shopping habits of their customers by studying data, and helping their businesses to respond appropriately.
6 Mass acquisitions
Recently we have seen large organisations gobbling up others that are struggling, to create giant retailing concerns with disparate offerings. These acquisitions often seem to create new risk. Just looking down my local town centre in Bournemouth I can see several brands with clearly underutilised retail space that are all owned by the same group. Risk Management should be looking at that portfolio and suggesting consolidation.
Also some businesses have purchased others and then consolidated them, but without telling the customers that the businesses have moved. People think the business has left town, when actually it has been moved in with another. Risk Management should have a more expansive view of risks to a business, such as this, and be raising the issues and helping to resolve them.
7 Range increases
As online grows Distribution Centres expand the challenges of such a rapidly expanding part of the business around personnel, returns, pandemic control measures, storage, third party supply chain security, distribution, payment, security and packing are many and varied.
It is vital that every Risk Management department gets fully engaged with the Risk Management issues affecting Distribution Centres, because they are the engines driving more and more retail businesses.
Don’t just blithely leave these matters to the DC management team, or to Operations or Logistics. I have seen examples of where Risk Management simply ends up being part of the Logistics management team’s remit by default, with no training and (with respect) probably not the necessary experience and expertise in many cases.
The pandemic will be affecting us for some time. It is not going to all be over by Christmas. Indeed at the time of writing the Government has reduced social gatherings to a maximum of 6 people across England and stated that this arrangement could still be “in place for Christmas” (although many commentators think this very unlikely in practice).
The pandemic has had significant impact on the shopping experience for consumers, introducing unwanted friction into the customer journey. New friction points include the need to queue, temperature assessments, the requirement to divulge personal details – such as name and address – for track and trace, the inability to try on clothing or shoes in store but at home and possibly having to queue to return them at a later date, one way systems, directions to avoid handling goods, the constant sanitising of baskets, carts and hands and a requirement to wear a mask, as well as social distancing and a need to pay with card and not cash – to name but a few! Risk Managers have a significant opportunity to help resolve these friction points by finding new and better ways to deal with the Covid threat.
In conclusion, at a time when old style LP is finally on the way out, the need of businesses to manage risk has never been greater. It is just that Risk Management is less about chasing shoplifters and more about supporting the business to avoid waste, provide a safe, frictionless shopping experience to the consumer and to protect the brand. The challenge for Risk Managers is to cover all of these bases as efficiently as possible in the face of a tough economic environment and perhaps a lack of appreciation of the relevance and value to a modern omni-channel retail business.