Retail Analytics: It’s Loss Prevention’s Time to Shine

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Retail Analytics: It’s Loss Prevention’s Time to Shine

By Catherine Walsh, Tyco Retail Solutions - 07/17/2018

In the morning, sales associates restocked a front display table with 10 black shirts and 10 pairs of jeans. Over the course of the day, customers bought one shirt and two pairs of pants. So, why are there only three pairs of jeans left at closing time?

No, this isn’t a math question gone wrong. Loss events are all too familiar to apparel retailers, with denim jeans making the list of the top most-stolen items, according to the National Retail Federation’s (NRF) 2017 Organized Retail Crime (ORC) survey. While it may be a challenge for all businesses, it isn’t something that a retailer’s bottom line can handle. NRF reports the financial impact of ORC and return fraud is considerable, costing retailers an average of $726,351 per every $1 billion in sales. This staggering number underscores why retailers need to continue finding new ways to combat these increasingly prevalent crimes directly affecting their profit margins.

In the ever-growing e-commerce world we live in, it’s more apparent than ever that loss prevention needs to take center stage for apparel retailers if they want to increase or maintain their gross earnings. While the NRF reports that two-thirds of loss prevention budgets are either flat or declining, apparel stores need to incorporate loss prevention solutions that will not only help them prevent shrink to preserve their income, but will also save them money. Enter: loss prevention analytics.

For some time, inventory and merchandising management have used data analytics to gain actionable insights to help make more effective and predictive operational decisions. As the retail industry has shifted to an “always-on, always open,” shopping world, it’s imperative for loss prevention to keep up with the data-driven influence that plays a vital role in the planning and management decisions involving inventory, store traffic, operations and e-commerce. Real-time data and analytics has a lot to offer to the loss prevention decision making process. However, for some time now, this data has gone untapped by loss prevention professionals due to the lack of necessary technology to collect and analyze information and store activity for retailers — until now.

Today, analytics is one of the most vital tools apparel retailers can take advantage of in order to statistically identify the key factors and criteria which highly correlate with loss. Collecting data from integrated sources gives retailers a more holistic perspective of their store traffic, environmental layout and conditions, a better understanding of the market activities, and vital wisdom into the contributing causes for loss. Combining these new insights allows retailers to make informed business decisions based on predictive and meaningful data versus reactive reporting measures to help reduce shrink after the fact.

New, innovative technology can provide real-time intelligence into potential shrink and actual loss. With executive style dashboards, all of the data can be aggregated into one, easy-to-navigate, meaningful summary with drill-through capabilities to mine the details when needed. This type of tool and knowledge enables loss prevention managers to take proactive measures by identifying problems early on and taking action. With a centralized view into operations, loss prevention leaders can gain a better understanding of the weaknesses in their operations and how they can lead to more opportunistic shoplifting.

As brick-and-mortar continues to compete with e-commerce and shakeups become more commonplace among retailers, loss prevention hasn’t been as top of mind as it should be. Only 20 percent of retailers believe that management has a solid understanding of the ORC problem, according to NRF’s ORC survey. With the real-time data providing a clear sightline into the larger causes of shrink within operations, apparel retailers and merchandisers can more accurately determine the financial value of each alarm. Identifying key factors correlated with loss due to shrink helps retailers to analyze and classify locations likely to have a high incidence of shrink. Having these insights allows them to take better preventive actions and gain control of their losses in a more cost-effective manner. These quantified findings can help educate senior management, including CFOs, on how shrink incidents impact bottom line results, helping loss prevention move up higher on their list of priorities.

An area where apparel stores can especially benefit from loss prevention analytics is the fitting room. This is one of the differentiating experiences that physical stores offer shoppers that can’t be replicated online, although, it is also a prime area for shoplifting or clothing items to collect if not maintained regularly. Both situations can lead to items not being available for other shoppers to try on or purchase, leading not only to potential loss from shrink, but also to possible lost sales. New loss perception can provide preventive information into fitting room items, suspicious activity and alerting conditions all possibly contributing to shrink, so that associates can address situations as they occur to deter theft.

For obvious reasons, e-commerce doesn’t face the same loss prevention issues as traditional brick-and-mortar, which means utilizing store technology to reduce shrink is crucial to the success of physical apparel stores. The actionable insights gained from loss prevention analytics will ultimately be revolutionary to the operations and profitability of apparel store retailers. Gone are the days when data arrives once a week or in monthly reports. It’s time for loss prevention professionals to stop waiting and guessing about what’s happening, and begin to know what’s happening in their stores where and when it counts.

Catherine Walsh is vice president and general manager of Tyco Retail Solutions.