19 minute read
FUTURE OF LP
Stop Worrying about the Retail Apocalypse and Focus on the Tsunami of E-commerce Returns
Meehan is the chief strategy officer and chief information security officer for CONTROLTEK. Previously he was director of technology and investigations with Bloomingdale’s, where he was responsible for physical security, investigations, systems, and data analytics. He currently serves as the chair of the Loss Prevention Research Council’s innovations working group. Prior to his thirteen-year tenure at Bloomingdale’s, he worked for Home Depot in loss prevention, and has had various technology, loss prevention, and operational roles at several other companies. He can be reached at tom.meehan@controltekusa.com.
In the July–August 2017 issue of this magazine, I wrote an article titled “Brick-and-Mortar Is Not Dead; Amazon Just Proved It.” That statement continues to hold true. But when I read business publications or mingle at industry events, I still notice a lot of doom and gloom about the supposed retail apocalypse of store closing, tighter margins, and staff cutbacks. This fear of and focus on the threat from online retailers, like Amazon, might be distracting brick-and-mortar retailers from a different kind of a threat coming from within.
Ponder this—the average return rate at physical retail locations is between 3 and 9 percent, whereas for online retailers it is between 12 and 30 percent. Let me take a wild guess: your organization either has an online channel or plans to build one soon. Do you see what’s coming your loss prevention team’s way?
Amazon is clearly concerned about returns, as evidenced by its recent announcement of a partnership with Kohl’s. This should come as no surprise since returns are one area where e-commerce-only retailers might be at a disadvantage. They sell the product at a lower margin because, in theory, they have lower overhead. A returned item might eat up more than the margin, causing a loss. If the overall return rate is between 12 and 30 percent, as it appears to be in e-commerce, you can see the scale of the problem.
Online retailers have another disadvantage from the logistics standpoint. They have to absorb the cost of shipping the item back to the facility, sorting, and repacking, and endure a higher chance of damage. Plus there is a delayed reintroduction of the product back to the inventory if it isn’t damaged. On top of all this, if the process is even slightly inconvenient, customers are just a click away from hundreds of other places to shop.
How Big Is the Return Problem for Brick-and-Mortar Retailers?
Over the years, traditional chains have created generous return policies with the intent of providing outstanding customer service. Some even had no limits on returns—a customer could return anything, anytime. This led to abuses, which accelerated when traditional retailers also started having online presences. As a result, in the past three years we saw more and more retailers starting to restrict returns. But restrictive return policies discourage honest shoppers, so this now becomes a balancing act.
As it turns out, a lot of your customers’ shopping habits are directly related to your return policy. There is a significant marketing advantage to be able to say, “We trust our customers, so we will take anything back.” This helps sales. At the same time, this kind of policy may influence the customer to buy several sizes to try at home. This increases returns and your costs. Some retailers who have both physical and online presences have introduced restocking fees on just online returns. But restocking fees do not encourage good customers to shop again. In a recent survey, almost 80 percent of shoppers said if the return process is simple, they will buy again—meaning that if it isn’t, they won’t. No doubt, the balancing act is becoming more and more challenging.
Implement a Returns Management Process
It helps to have some sort of a returns management process. There are a few third-party resources that can help you manage your returns by using advanced data analytics and systems. What we must not forget is the fraud aspect of online returns. “Almost 10 percent of online returns are fraud,” according to Tom Rittman, vice president of marketing at Appriss Retail. If you think of how difficult it is to manage a fraudulent return problem in a brick-and-mortar environment, imagine how difficult it will be when you start having to deal with a flood of online returns.
Policy alone is not the answer. History and data show that restrictive policies can discourage more good customers than bad ones. However, using advanced analytics and data to make returns decisions has proven effective in reducing customer friction. Imagine a world where you could identify a fraudulent refund or abusive customer behavior with over 95 percent accuracy. This can be done today with the right technology. Not to mention, the right analytics suite can also take all the other data points in your store and combine them with your return data to help you build a better customer model. This is where it might be worthwhile to focus some attention and energy.
As the e-commerce percent of sales grows in your organization, so will the refund problem. Instead of worrying about the “retail apocalypse,” refocus on this. The percentage of returns is one advantage you currently have over the likes of Amazon. By preempting the spike in return fraud at your organization, you can keep that one advantage and stay competitive.
RILA’S ASSET PROTECTION LEADERS COUNCIL
BRINGING TOGETHER TOP INDUSTRY LEADERS TO ADVANCE ASSET PROTECTION
By Jacque Brittain, LPC, Editorial Director
In an industry as dynamic as retail, asset protection leaders have long been faced with the daunting task of keeping pace with the changing landscape of the industry. This has never been more true than it is today.
Safeguarding company assets is no longer synonymous with simply catching shoplifters and requires a much more holistic approach to addressing retail loss. In a global marketplace, asset protection leaders must be global thinkers. Our needs, our challenges, and our responsibilities are multidimensional. This is an age where omni-channel retailing is reshaping the way that we do business, and asset protection leaders must rethink their approach to enhancing the profitability of the retail enterprise if they want to survive.
However, that doesn’t mean that we have to face the world on our own. We often talk about standing on the shoulders of those who came before us. But today it’s just as important that we stand beside those who share our interests and our passions, finding common ground to overcome our greatest business challenges. RILA’s Asset Protection Leaders Council does just that. “When we bring together the top thought leaders in asset protection from the most progressive retailers in the world and establish a mindset of achieving shared goals, good things are going to happen,” said Lisa LaBruno, senior vice president of retail operations for the Retail Industry Leaders Association (RILA). “That’s why we launched the Asset Protection Leaders Council (APLC) six years ago. Our asset protection leaders are making a difference. By working together, we’re solving the most pressing challenges facing the industry.”
Competition drives the retail engine. But when we look under the hood, we often find that it’s the sum of many different parts that keeps things running smoothly. Occasionally, we learn that some of those parts may come from sources that we didn’t expect. There are certain areas where we shouldn’t compete with each other, and by working together we can all benefit through these innovative solutions.
“This is a transformative time in retail,” said LaBruno. “Retailers are competing for every sale, and our asset protection leaders must be true business partners. The trick is to identify areas within asset protection that are noncompetitive and ripe for collaboration. The APLC seizes those opportunities to solve common problems together for the benefit of the entire industry.” Lisa LaBruno
Bringing Leaders to the Table
“The Asset Protection Leaders Council is designed to pull together retail leaders to address critical issues facing the asset protection industry in real time,” said Paul Jaeckle, LPC, vice president of asset protection at Meijer Stores and chair of the APLC. “Our approach and what we accomplish is really representative of what’s happening in the asset protection space collectively. It was created as a forum for the leaders to have collaborative discussions about the different things that are happening in the industry but
without the competitive element that exists in other areas of retail.” By focusing on research, industry-wide initiatives, benchmarking, networking, and other projects and programs that support asset protection, the APLC is finding creative ways to approach current issues and emerging trends. Just as importantly, the APLC is providing a platform to review and discuss those issues most important to the industry and a voice to get things done. There have been discussions regarding what’s going on in the digital space. Crisis management and active-shooter situations have been deliberated. Throughout last fall’s hurricane season, the APLC discussed the top challenges facing retail organizations, shared effective solutions, and collaborated with the Federal Emergency Management Agency (FEMA) to get communities back on their feet. By identifying these industry-wide initiatives, they’re driving innovative solutions that support the asset protection agenda. “We’ve identified common ground that’s good for everyone to talk about,” Paul Jaeckle said LaBruno. “But it’s the participants’ commitment to collaboration that makes all the difference. We’re only as good as the asset protection leaders who participate.” The APLC is fortunate to have participation from solution provider sponsors Intel Corporation, Profitect, and Zebra Technologies. These companies are leading the way through their support, and their thought leadership contributes to the overall success of the APLC.
– Paul Jaeckle, LPC, Meijer Stores
The Power of Information
Much of the work that comes out of the APLC is used for educational purposes. By bringing together retailers from specialty, big-box, grocery, and other retail platforms to share ideas, considerable information is gathered that can be used to publish research documents, white papers, benchmarking surveys, and other resources.
There may be forums that will be pulled together or surveys generated to get a better understanding of what’s really happening in the industry and how people are reacting to specific trends. This also allows the individual leader to gain a better perspective of how their particular position compares to where the industry is headed, how to identify some of the trends that impact their business, and how to respond as a department to best support the needs of the business.
“As an industry leader involved in the process, completing the surveys and taking part in these initiatives gives you access to that information based on your participation,” said Jaeckle. “For example, if a white paper is generated based upon one of the APLC initiatives, the research that’s compiled will be provided back to you once a report is generated. That offers those participating a tremendous benefit. There have been several research documents that I’ve taken full advantage of to help modify or improve the way that we’re approaching things in my business.
“But it also provides a valuable resource to educate my executive leadership on what’s happening in our business. It offers a degree of independence under the sponsorship of RILA to further advise and educate executive leadership, providing additional information and focus on these important business topics under
RILA’s Asset Protection Leaders Council often tour retailer locations to see implementation of technologies or strategies as shown in this tour of REI’s flagship store near Seattle.
the guidance of a reliable source and a credible platform.”
Some of the most compelling work by the APLC is the result of a robust research agenda. Over the past three years, the APLC has teamed up with renowned academic researchers to study emerging and pressing challenges facing AP organizations. Recent projects include the following four topics.
Total Retail Loss. In partnership with Professor Adrian Beck of the University of Leicester in the United Kingdom, this research looks at how the retail industry understands the nature and extent of all the potential types of retail losses while developing a new definition of loss that’s a better fit for the contemporary retail landscape. This groundbreaking model is intended to help better understand the impact of current and future retail risks while making more informed choices about the utilization of increasingly scarce resources. For asset protection professionals, it provides a unique opportunity to build upon the critical role they can play in becoming true agents of change within the retail setting.
Opportunities and Challenges for Engaging Merchants in the Protection of Retail Assets. Overall, tremendous opportunity exists to improve merchant engagement in asset protection. In cooperation with the University of Chicago Booth School of Business, this project highlights successful initiatives by various retailers to engage retail buyers and improve cooperative efforts between asset protection teams and merchant groups. By providing clear guidance to help ensure retail merchants are educated regarding their role in shrink prevention, we can garner the commitment and attention necessary to work collectively and improve performance.
Mobile Point-of-Sale and Loss Prevention. In cooperation with the University of Arkansas, this study on mobile technology in the retail store brings together the industry’s leading retailers, consumer product manufacturers, and solution providers to examine the potential risks of technological innovation and explore possible methods for mitigating risk. The study assesses the technological capabilities, retail store attributes, and customer attitudes and beliefs with respect to mobile point-of-sale, as well as precisely how the mobile innovation disrupts the transaction processes around which loss prevention is currently designed.
Self-Scan Technologies. In collaboration with the ECR Community Shrinkage and On-shelf Availability in Europe, the APLC kicked off the new year by once again partnering with Professor Beck to examine the impact of self-scan technologies on retail losses. Building upon Beck’s previous
work on the topic and the APLC’s collaboration with the University of Arkansas, the research aims to help current and future self-scan users to better understand what these risks are and how they can be best managed moving forward to ensure they play a positive role in profit enhancement and an enjoyable experience for retail consumers. This research will further help retailers understand how the risks posed by self-scan systems can vary by type of system while offering a clearer understanding of how this might impact retail loss.
Similar Issues, Different Perspectives
For many years the loss prevention and asset protection community has benefitted from the outstanding work provided by the Loss Prevention Research Council (LPRC), which has conducted more than 120 real-world loss prevention research projects for retailers and our retail business partners. While both provide valuable information to the industry and may take on similar subjects, the APLC uses different methods and approaches the issues from a different perspective.
“I’m active in both the APLC and the LPRC programs, and both are tremendous operations,” said Jaeckle. “They are both trying to solve critical shrink problems with the way that they’re approaching these issues, but it isn’t competitive. This is why I think you see a lot of companies participating in both. They’re both tremendous
organizations that are just looking at issues from a different perspective.”
The objectives of the APLC are defined based on the thoughts and needs of the individual retail leaders. There’s discussion amongst the individual leaders regarding the different topics, with decisions made based upon a collective approach to the subject at hand.
For example, approximately fifty asset protection pyramid heads
Over the course of several months leading up to the Nashville meeting, RILA’s (R)Tech AP Working Group vetted start-up companies to identify game-changing technology they wanted to know more about. The top five were given the unprecedented opportunity to pitch their technology to several “sharks” (AP leaders) and the broader audience.
participated in last fall’s APLC meeting in Nashville. During the meetings, eight different retailers hosted store visits, providing insight into their top asset protection challenges and their approach to solving those issues. Afterward, the group brainstormed on those experiences—what they liked, what they would do differently, best practices, and methods to mitigate the problems faced. This allowed the entire group to benefit from the ideas and opinions of the collective team, creating a win-win for the hosts as well as all the participants.
“It’s really interesting to take part in these conversations because you’re able to hear how the individual retail leaders respond to the situation, the solutions that we come up with collectively, and the productive approaches that we learn about based on our conversations,” said Jaeckle. “Each retailer can then bring that back to their own program to determine how and whether it can benefit them.”
Setting Things in Motion
Each year at the annual RILA Asset Protection Conference the APLC will gather to frame out what the emphasis is going to be for the next year. The process begins by looking at all the research gathered over the previous year, reviewing what was accomplished and identifying priorities that should be pursued moving forward based on those results. This will include a thorough recap that involves each of the retailers that participated in those studies.
Other initiatives may involve scheduling APLC visits to different markets and different types of retailers, opening doors for each leader to experience the nuances and challenges of different or unfamiliar retail environments, different stages of program maturity and development, and different or unique retail cultures.
For example, in 2017 APLC visited a retailer with a new and growing asset protection department. Collectively, the participants were able to review many of the different aspects of the culture and the program, offer feedback on what was seen, and make suggestions that could potentially help support this growing department.
Another visit featured the opportunity to tour a fulfillment center environment. With the expansion of omni-channel retailing, leaders were provided with an idea of what an asset protection department faces when working more intimately with the digital customer.
“For retailers now looking to get into the digital space, it was really eye opening to see how the loss prevention department operates,” said Jaeckle. “Some of the things that we take for granted—like how to protect the brand, how to interact with the customers, and how you’re protecting your assets—can be much different in the digital space.”
The various challenges and opportunities currently facing the
industry will then be discussed, expanding the conversation to forge a comprehensive plan that will set the tone for the upcoming year. This helps keep all members focused on the spectrum of issues currently facing the asset protection professional and the topics most relevant in today’s retail setting.
Nashville Shark Tank
The recent event in Nashville took full advantage of the exceptional turnout, with an innovative approach to addressing retail shrink issues.
“Bringing retailers together to look at new-wave ideas and innovation to help mitigate against loss is an exciting task in itself, but we also wanted to have a little bit of fun with it,” said
Jaeckle. “So we decided to use the Shark Tank format.”
Over the course of several months leading up to the Nashville meeting, RILA’s (R)Tech AP Working Group—comprised of retail executives responsible for identifying cutting-edge technology solutions that mitigate total retail loss—vetted start-up companies to identify game-changing technology they wanted to know more about. The group reached consensus on the top five start-ups to invite to Nashville. Each start-up was given the unprecedented opportunity to pitch their technology to several “sharks” (AP leaders) and the broader audience. The sharks challenged each start-up, asking pressing questions about the technology and its application to retail AP. Each pitch ended with the sharks indicating whether they were willing to enter into a pilot with the start-up.
“In this particular environment, it was probably one of the best ways to make the presentations for all involved,” said Jaeckle. “Even those who watched from the audience were highly engaged, seeing the same value for their companies as what the sharks were experiencing. It was something completely new and different and
something that hasn’t been approached this way in the industry.”
The exercise proved to be both fun and productive, presenting asset protection leaders with a mechanism for thinking outside of the traditional box by taking a cutting-edge approach to solutions under the spirit of entrepreneurialism. It also provided the opportunity to help influence a start-up company by making suggestions on how to put it all together.
For the start-up companies trying to get a foot in the door, it also helped provide real-time feedback on some of the things that they’re trying to accomplish, facing criticisms and feedback on how they can better customize their products and help solve some of the problems that retailers are confronted with.
“The Shark Tank format provided a broad approach to opportunities in our business, but not in the sense that a provider was pitching something that was essentially off the shelf,” said Jaeckle. “This allowed us to essentially outline where we’re experiencing risk in our companies, looking at those issues under a genuine spirit of collaboration. It provided the cooperation between the start-ups in the retailers as well, collectively reviewing everything as a team.”
The Shark Tank format proved to be both fun and productive, presenting asset protection leaders with a mechanism for thinking outside of the traditional box by taking a cutting-edge approach to solutions under the spirit of entrepreneurialism. It also provided the opportunity to help influence a start-up company by making suggestions on how to put it all together.
How to Get Involved
Change may be inevitable, but positive and meaningful change is typically the product of cooperation, flexibility, creativity, effort, and thought leadership. Nodding in agreement or pointing a finger in the right direction isn’t leading and isn’t enough to influence change. If we truly want to make a difference, our first step is to get involved.
RILA’s Annual Retail Asset Protection Conference is April 29 to May 2 in Orlando. The Asset Protection Leaders Council will meet on Sunday, April 29, from 2:30 to 5 p.m. While membership in the APLC is limited to asset protection pyramid heads from RILA member companies, all retail asset protection pyramid heads are invited to attend this meeting even if your company is not a RILA member. Those who have an interest and any solution providers who are interested in sponsoring the APLC should contact Lisa LaBruno at lisa.labruno@rila.org.
JACQUE BRITTAIN, LPC, is editorial director for LP Magazine. Prior to joining the magazine, he was director of learning design and certification for Learn It Solutions, where he helped coordinate and write the online coursework for the Loss Prevention Foundation’s LPC and LPQ certifications. Earlier in his career, Brittain was vice president of operations for one of the largest executive recruiting firms in the LP industry. He can be reached at JacB@LPportal.com.
