Are Retailers Wasting Billions Every Year on Loss Prevention Technologies? (2/28/2008)

Every year retailers worldwide spend billions of Euros on various types of technology such as CCTV, tagging and Data Mining in an attempt to tackle the ever present problem of shrinkage, which estimated to cost the European Fast Moving Consumer Goods Sector alone as much €18 billion a year (equivalent to the GDP of Luxembourg!). Trying to decide in which technology to invest can be a tricky business, with often extravagant claims by suppliers being unsubstantiated by any published evidence. Persuading the business to invest can also be an up hill struggle as can deciding upon a way to measure the overall 'value' such investments can be worth to the business.

In order to address these issues, the ECR Europe Shrinkage Group has published a groundbreaking new report focussed on providing the loss prevention community with a better understanding of how to calculate the value of investments in a range of technologies, together with a series of practical steps to measure their impact upon the problem of shrinkage in the business.

Adrian Beck, a Reader in Criminology at the University of Leicester and the author of the report adds: 'If retail loss prevention practitioners are to be taken more seriously by other functions within the business, then they need to show greater rigour and professionalism in the way in which they go about developing business cases for investment, and how they measure and monitor the performance of 'solutions' they recommend. It is hoped that this report will help them to achieve this'.

Sean Bowen Head of Security for Asda adds: 'security practitioners are under increasing pressure to reduce the cost of shrinkage to their businesses and often they can feel pressured into making investments in technologies that may not deliver all that was originally promised. This ECR report provides practitioners with a valuable guide to ensure that decisions in the future to invest in technologies are based upon a much more informed and systematic approach which will result in maximising the ROI from Loss Prevention investments'.

In particular, the report offers the retail loss prevention practitioner:

• A step by step guide on how to develop a coherent and persuasive business case for investing in shrinkage solutions in the future, including a detailed worked example.
• Detailed understanding of how to measure the 'value' of such investments, including a comprehensive explanation of the four key measures commonly used: Return on Investment, Net Present Value, Discounted Pay Back Period, and Internal Rate of Return.
• Clear guidance on how these measures should be used when communicating with the rest of the organisation to ensure credibility.
• How to measure the 'value' of investments where strict financial returns are not easy to identify such as with CCTV, including a comprehensive list of possible variables that can be used for CCTV, EAS and Data Mining technologies.
• Detailed information on what other retailers are using, how they rate CCTV, EAS and Data Mining technologies and how they go about measuring their performance.
• A comprehensive list of Data Mining exception reporting variables to enable loss prevention practitioners to make the most of the technology.
• A checklist of requirements to ensure that CCTV, EAS and Data mining technologies are implemented effectively.

The report also found that:

• The loss prevention community in Europe needs to radically improve the way in which it measures the value of investments in shrinkage control technologies. As business competitiveness increases and demands for returns on internal investment come under greater scrutiny, the need to 'prove' value for money is becoming more necessary.
• There is a lack of understanding of how to measure the value of investments and too often loss prevention practitioners use the generic term 'Return on Investment' as a catch all phrase to suggest overall effectiveness rather than as a precise measure of value as it was originally created to convey.
• Loss prevention executives need to understand and use the language of senior management when making business cases for investment. Incorrect usage of financial terms and naïve cost/benefit models will undermine credibility, particularly when being compared with investment requests from other functions in the business.
• There is a dearth of published information available charting the value of investing in CCTV, EAS and Data Mining technologies in retailing. While some limited studies exist on EAS and Data Mining, virtually nothing has been written about the value of investing in CCTV. Those studies that do exist adopt overly simplistic methods to measure the value impact of the interventions.

John Fonteijn, one of the co-chairs of the ECR Europe Shrinkage group adds: 'This report, for the first time, gives retailers a step by step guide as to how they can begin to go about not only building a water tight business case for investments in loss prevention technologies, but also the tools to measure accurately the impact they have on shrinkage'.

The author concludes: 'If retail loss prevention practitioners are to be taken more seriously by other functions within the business, then they need to show greater rigour and professionalism in the way in which they go about developing business cases for investment, and how they measure and monitor the performance of 'solutions' they recommend. It is hoped that this report will help them to achieve this'.

Note: This story has been adapted from a news release issued by the University of Leicester

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