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

Introduction to ECR Europe Introduction to ECR Europe and Shrinkageand Shrinkage

Adrian BeckAdrian BeckReader in CriminologyReader in Criminology

University of LeicesterUniversity of Leicester, UK, UK

ECR South Africa, February 2006

ECR Europe Shrinkage GroupECR Europe Shrinkage Group

Established in 1999Established in 1999

Made up of retailers, manufacturers and Made up of retailers, manufacturers and academicsacademics

The ECR Shrinkage Project TeamThe ECR Shrinkage Project Team

Purpose of ECR Shrinkage GroupPurpose of ECR Shrinkage Group

Raise awareness of the problem of shrinkageRaise awareness of the problem of shrinkage

Co-ordinate and sponsor cutting edge researchCo-ordinate and sponsor cutting edge research

Encourage companies to address the problem Encourage companies to address the problem

Promote a more systematic and systemic Promote a more systematic and systemic

approach to dealing with the problem (the ECR approach to dealing with the problem (the ECR

Shrinkage Road Map)Shrinkage Road Map)

Guiding PrinciplesGuiding Principles– Engage senior management and prioritise Engage senior management and prioritise

shrinkage: it is a consumer problemshrinkage: it is a consumer problem

Choice and ranges restrictedChoice and ranges restricted

High margin products not listedHigh margin products not listed

Products get locked upProducts get locked up

– Consumers frustratedConsumers frustrated

Shelves go EmptyShelves go Empty

– New item impact reducedNew item impact reduced

– Consumers switch stores or brandsConsumers switch stores or brands

– Lower consumptionLower consumption

Guiding PrinciplesGuiding Principles

Engage senior management and prioritise Engage senior management and prioritise shrinkageshrinkage

Identify accountabilities, measure, monitor Identify accountabilities, measure, monitor and motivateand motivate

Identify accountabilities, Identify accountabilities, measure, monitor and motivatemeasure, monitor and motivate

End to end accountabilityEnd to end accountability– From store and product design to reverse logisticsFrom store and product design to reverse logistics

Data accessibility, timeliness and granularityData accessibility, timeliness and granularity– Mining the data warehouseMining the data warehouse

Monitor and generate transparencyMonitor and generate transparency– Stock countingStock counting– Process auditsProcess audits

Incentivise staffIncentivise staff– Retailers with incentive schemes had lower levels of Retailers with incentive schemes had lower levels of

shrinkageshrinkage

Data mining...Data mining...

10p report

14,836,947 products

£12,000,000 shrinkage

Cashier error?


Engage senior management and prioritise Engage senior management and prioritise shrinkage shrinkage


Promote inter and intra company Promote inter and intra company collaborationcollaboration

Who needs to be involved?Who needs to be involved?

ManufacturerManufacturer– Design teamDesign team– ProductionProduction– Supply ChainSupply Chain– MarketingMarketing– SalesSales

RetailerRetailer– Buyer/MerchandisingBuyer/Merchandising– Loss PreventionLoss Prevention– Supply ChainSupply Chain– Store OperationsStore Operations

Environmental agencyEnvironmental agency

Before After

End to End SolutionsEnd to End Solutions




Promote inter and intra company Promote inter and intra company collaborationcollaboration

Adopt a systemic and systematic Adopt a systemic and systematic approachapproach

ECR Shrinkage Road MapECR Shrinkage Road Map

CORPORATE POLICY

Map & Measure

Develop Solutions

Implement

Evaluate Plan

Analyse

Wake Up

Call!


Engage senior management and prioritise Engage senior management and prioritise shrinkage shrinkage Identify accountabilities, measure, monitor Identify accountabilities, measure, monitor and motivateand motivatePromote inter and intra company Promote inter and intra company collaborationcollaborationAdopt a systemic and systematic Adopt a systemic and systematic approachapproachUnlock the value of the 'hot' conceptUnlock the value of the 'hot' concept

The Hot ConceptThe Hot Concept

Hot conceptHot concept• ProductsProducts

• PlacesPlaces

• PeoplePeople

• ProcessesProcesses People

Places

Products Processes



Identify accountabilities, measure, monitor and Identify accountabilities, measure, monitor and motivatemotivate

Promote inter and intra company collaborationPromote inter and intra company collaboration

Adopt a systemic and systematic approachAdopt a systemic and systematic approach

Unlock the value of the 'hot' conceptUnlock the value of the 'hot' concept

Focus on process failures firstFocus on process failures first

Focus on Process Failures FirstFocus on Process Failures First

Removes opportunityRemoves opportunity– Receipt processReceipt process– ReturnsReturns

Masks malicious activityMasks malicious activity

DeliversDelivers– Quick winsQuick wins– Cost effective winsCost effective wins– Sustainable solutionsSustainable solutions


Engage senior management and prioritise Engage senior management and prioritise shrinkage shrinkage Identify accountabilities, measure, monitor and Identify accountabilities, measure, monitor and motivatemotivatePromote inter and intra company collaborationPromote inter and intra company collaborationAdopt a systemic and systematic approachAdopt a systemic and systematic approachUnlock the value of the 'hot' conceptUnlock the value of the 'hot' conceptFocus on process failures firstFocus on process failures firstEncourage innovation and experimentationEncourage innovation and experimentation

Encourage innovation and Encourage innovation and experimentationexperimentation

Keep ahead of the gameKeep ahead of the gameInitiate…….Initiate…….– Pilot Studies on new ideasPilot Studies on new ideas– Road Map projects with suppliersRoad Map projects with suppliers– Benchmarking against industry surveysBenchmarking against industry surveys

Experiment…..Experiment…..– New solutionsNew solutions– New store layoutsNew store layouts

ECR survey showed that retailers who innovated ECR survey showed that retailers who innovated and experimented most had 20% lower and experimented most had 20% lower shrinkageshrinkage


Engage senior management and prioritise shrinkage Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and Identify accountabilities, measure, monitor and motivatemotivatePromote inter and intra company collaborationPromote inter and intra company collaborationAdopt a systemic and systematic approachAdopt a systemic and systematic approachUnlock the value of the 'hot' conceptUnlock the value of the 'hot' conceptFocus on process failures firstFocus on process failures firstEncourage innovation and experimentationEncourage innovation and experimentationDocument learning and disseminate successDocument learning and disseminate success

The ECR Europe 2004 The ECR Europe 2004 Shrinkage SurveyShrinkage Survey

Adrian BeckAdrian BeckReader in CriminologyReader in Criminology

University of LeicesterUniversity of Leicester, UK, UK


Processfailures

Inter-company

fraud

Internaltheft

Externaltheft

Shrinkage

Defining ShrinkageDefining Shrinkage

What Does Shrinkage Mean?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’

What Does Shrinkage Mean?What Does Shrinkage Mean?

Inter Company Fraud

Process Failures

Internal Theft

External Theft

MALICIOUS NONMALICIOUS

Degree of Intent

Probing Systems

Exploiting Loopholes

Mistakes

Poor Planning

Bad Management

Background and MethodologyBackground and Methodology

Last survey in 1999Last survey in 1999Need for a new benchmarkNeed for a new benchmarkStock loss calculated at retail pricesStock loss calculated at retail prices

Background and MethodologyBackground and Methodology

26 countries surveyed (21 last survey)26 countries surveyed (21 last survey)

250 retail companies and 44 250 retail companies and 44 manufacturers/suppliers contactedmanufacturers/suppliers contacted

Total FMCG sector valued at over €1 trillionTotal FMCG sector valued at over €1 trillion

Sample represents 13.7% of retail companies Sample represents 13.7% of retail companies with a combined turnover of €137,214,920,000with a combined turnover of €137,214,920,000

Counting the CostCounting the Cost

SectorSector % of % of salessales

Value (€ billions)Value (€ billions)

RetailRetail 1.841.84 18.518.5

ManufacturerManufacturer 0.570.57 5.75.7

TotalTotal 2.412.41 24.224.2

Total loss equates to Total loss equates to €€66 million per 66 million per dayday

Retailer’s Missed Profit OpportunityRetailer’s Missed Profit Opportunity

0%

1 %

2 %

3 %

4 %

5 %

Current Potential

Ave

rag

e R

etai

ler

Mar

gin

AverageRetailer

ProfitMargin

2.99%

1.84%

AverageRetailerShrinkMargin

4.83%62% Margin Growth

Shareholder ValueShareholder Value

Net Income Shareholder 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.




€1 Inventory Reduction € 0.20 € 4.00





€1 Inventory Reduction € 0.20 € 4.00

€1 Shrinkage Reduction € 0.70 € 14.00


Shrinkage Retail IcebergShrinkage Retail Iceberg

51%

49%Unknown Loss

€9.5 billion

Impact of the IcebergImpact of the Iceberg

Lack of visibilityLack of visibility

Lack of awarenessLack of awareness– When did it happen?When did it happen?– Where did it happen?Where did it happen?– How did it happen?How did it happen?– Who was responsible?Who was responsible?

Lack of accountabilityLack of accountability

Prioritisation of the most visible/acceptablePrioritisation of the most visible/acceptable

Location of the ProblemLocation of the Problem

€5.7 Billion €1.2 Billion €17.3 BillionTOTAL

€24.2 Billion

24%

Manufacturer Distribution

5%

Retail Distribution

71%

Retail Stores

+ + =

Causes of Retail Stock LossCauses of Retail Stock Loss

Process Failures

27%

Internal Theft28%

External Theft38%

Inter-Company Fraud

7%

Causes of Retail Stock Causes of Retail Stock LossLoss

Causes of Retail Stock Causes of Retail Stock LossLoss

Retail Company Co-operationRetail Company Co-operation

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Per cent

Marketing

Planning and Design

Legal Dept

IT Dept

Human Resources

Buying

Finance

Logistics

Supply Chain Mangt

Auditing

Board of Directors

Store Mangt

Security/Loss Prevention

High Involved Regularly Involved Hardly Involved

Causes and Spending on ShrinkageCauses and Spending on Shrinkage

60

38

27 28

9

26

4 7

0

10

20

30

40

50

60

External Internal Process Inter Company

Spending

Cause

Other Survey HighlightsOther Survey Highlights

Companies with a corporate policyCompanies with a corporate policyCompanies that prioritised stock loss Companies that prioritised stock loss Companies that provided bonuses for good Companies that provided bonuses for good stock loss results stock loss results Companies with higher levels on inter-company Companies with higher levels on inter-company co-operation co-operation Companies that carried out a greater number of Companies that carried out a greater number of shrink reduction projects…..shrink reduction projects…..

… … All had lower levels of stock lossAll had lower levels of stock loss

6 Steps to 6 Steps to Successful Shrinkage ReductionSuccessful 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

For a free copy of the final For a free copy of the final report email:report email:

[email protected]@le.ac.uk

Exploring Risk: The ‘Hot’ Exploring Risk: The ‘Hot’ ConceptConcept

Adrian BeckAdrian BeckReader in CriminologyReader in CriminologyUniversity of LeicesterUniversity of Leicester


BackgroundBackground

Risk is not evenly distributed. It is focussed on Risk is not evenly distributed. It is focussed on

particular products, places, people, processesparticular products, places, people, processes

Crime hot spotsCrime hot spots

3% of locations in some cities 3% of locations in some cities

account for 50% of recorded crimeaccount for 50% of recorded crime

Hot productsHot products

Some products much more at risk than othersSome products much more at risk than others

Hot Products ExampleHot Products Example

Hot

pro

duct

s in

H

ot p

rodu

cts

in

the

Net

herla

nds

the

Net

herla

nds

What Causes Products to be Hot?What Causes Products to be Hot?

CConcealableoncealable

RRemovableemovable

AAvailablevailable

VValuablealuable

EEnjoyablenjoyable

DDisposableisposable

BackgroundBackground

Supply chain hot spotsSupply chain hot spotsRisk exists at particular points, Risk exists at particular points, e.g. delivery to storee.g. delivery to store

Hot PeopleHot People– Marginalised, unmonitored, temporary, known Marginalised, unmonitored, temporary, known

offendersoffenders

Value of Understanding the ‘Hot’ ConceptValue of Understanding the ‘Hot’ Concept

Avoids spreading valuable resources too thinlyAvoids spreading valuable resources too thinly

Focus on the vital few amongst the trivial many Focus on the vital few amongst the trivial many

Rapid impact Rapid impact

Greatest returnGreatest return

Possible diffusion of benefitsPossible diffusion of benefits

Hot Store Mythology Hot Store Mythology

Social GeographySocial Geography

‘‘Bad areas cause high shrinkage’Bad areas cause high shrinkage’

ManagementManagement

‘‘Good results follow good managers’Good results follow good managers’

The Hot Store Project: From Myth to RealityThe Hot Store Project: From Myth to Reality

ECR project launched to understand the ECR project launched to understand the

issues relating to store lossesissues relating to store losses

Research questions:Research questions:

Across Europe, what is the profile of store Across Europe, what is the profile of store

losses?losses?

What makes a store ‘hot’?What makes a store ‘hot’?

MethodologyMethodology

Survey:Survey:

– Contacted a sample of European retailersContacted a sample of European retailers

– Gathered shrink details for all outletsGathered shrink details for all outlets

Case Studies:Case Studies:

– 4 companies: Ahold (Czech); Feira Nova 4 companies: Ahold (Czech); Feira Nova (Portugal); Tesco (UK); Wickes (UK):(Portugal); Tesco (UK); Wickes (UK):

– Collected estate-wide dataCollected estate-wide data

– Visited 4 stores per company (2 ‘good’, 2 ‘bad’)Visited 4 stores per company (2 ‘good’, 2 ‘bad’)

– Interviewed key store staffInterviewed key store staff

European Store Shrinkage RateEuropean Store Shrinkage Rate

0

200

400

600

800

1000

-3 -2 -1 0 1 2 3 4 5 6 7 7+

Shrinkage as a % of turnover

Num

ber

of S

tore

s

Average Stores Hot Stores

5.7%

Low Stores

4.8% 89.6%

Estate-Wide FindingsEstate-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

Hot Stores AttributesHot Stores Attributes

Store manager and team see shrinkage Store manager and team see shrinkage as their responsibility BUT blame the as their responsibility BUT blame the environment, the staff, outsiders, the environment, the staff, outsiders, the company…company…

‘‘there is only so much we can do to control there is only so much we can do to control

the situation’ (CS 2,1)the situation’ (CS 2,1)

‘‘the stock deliveries are never correct – we the stock deliveries are never correct – we

always inherit the problem’ (CS 4,2)always inherit the problem’ (CS 4,2)


Company doesn’t make manager Company doesn’t make manager accountable for losses at the storeaccountable for losses at the store

‘‘when managers move store they are not when managers move store they are not held accountable for what’s left behind’ held accountable for what’s left behind’ (CS 1,1)(CS 1,1)


Company procedures are not followedCompany procedures are not followed

‘‘we should be doing 70 staff searches a week but we we should be doing 70 staff searches a week but we only ever manage 40’ (CS 4,1)only ever manage 40’ (CS 4,1)

‘‘we haven’t been having the weekly we haven’t been having the weekly team shrinkage meeting’ (CS 4,2)team shrinkage meeting’ (CS 4,2)

‘‘staff don’t fill in the wastage staff don’t fill in the wastage reports properly’ (CS 4,3)reports properly’ (CS 4,3)

‘‘the backroom area always looks the backroom area always looks like a bomb site’ (CS 2,4)like a bomb site’ (CS 2,4)


The manager does not provide support, The manager does not provide support, leadership and controlleadership and control

‘‘I don’t trust my staff and they don’t do I don’t trust my staff and they don’t do

what I tell them to do’ (CS 2,4)what I tell them to do’ (CS 2,4)

‘‘there is collusion between the security guards there is collusion between the security guards

and the cashiers. The cashiers are incompetent. and the cashiers. The cashiers are incompetent.

The head of the cashiers knows what to do she The head of the cashiers knows what to do she

just doesn’t do it.’ (CS 4,3)just doesn’t do it.’ (CS 4,3)


Store management does not know the Store management does not know the extent of the problemextent of the problem‘‘I would have to say that Mach 3 is highly stolen I would have to say that Mach 3 is highly stolen

in this store because that’s what everybody in in this store because that’s what everybody in

the industry says’ (CS 1,2)the industry says’ (CS 1,2)

‘‘I can never reconcile my inventory…’ (CS 3,4)I can never reconcile my inventory…’ (CS 3,4)

‘‘we don’t keep a record of security incidents in the we don’t keep a record of security incidents in the

store – we tell head office and then throw the store – we tell head office and then throw the

data away’ (CS 1,2)data away’ (CS 1,2)

The 4 ‘A’s to Preventing Stores Becoming HotThe 4 ‘A’s to Preventing Stores Becoming Hot

AAccountability

ction

ttitude

udit

AAAAAA

AccountabilityAccountability– The manager owns the problem and The manager owns the problem and

prioritises it all day, every day prioritises it all day, every day

‘‘keeping my eye on the ball’ (CS 4,2)keeping my eye on the ball’ (CS 4,2)

– The manager is highly committed The manager is highly committed to reducing shrinkage to reducing shrinkage

‘‘as important as sales’ (CS 4,1)as important as sales’ (CS 4,1)


ActionAction– Store context needs to be understood and Store context needs to be understood and

appropriate actions taken to meet the challengesappropriate actions taken to meet the challenges‘‘this is a tough store but we know it and this is a tough store but we know it and

develop plans accordingly’ (CS 4,4)develop plans accordingly’ (CS 4,4)

– All procedures must be adhered to consistently: All procedures must be adhered to consistently: they must be robust, standardised and institutionalised they must be robust, standardised and institutionalised

‘‘we know what we need to do – good procedures we know what we need to do – good procedures already exist’ (CS 2,3)already exist’ (CS 2,3)

– Backroom areas - keep them neat and tidy Backroom areas - keep them neat and tidy as a message to all staff as a message to all staff

‘‘there is no reason why the backroom shouldn’t there is no reason why the backroom shouldn’t be as clean as the shopfloor’ (CS 2,3)be as clean as the shopfloor’ (CS 2,3)


Good management is the solutionGood management is the solution

96%

1.5%

73%

4.7%

56%

4.5%13%

8.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Store 1 Store 2 Store 3 Store 4

ComplianceShrink

Source: Ahold Hypermarkets: Czech: 2004

AttitudeAttitude– Build a cohesive management teamBuild a cohesive management team

‘‘Vision. Mission. Obsession’ (CS 3,1)Vision. Mission. Obsession’ (CS 3,1)

‘‘You need the right people with you and for you. You need the right people with you and for you. It’s about having a common goal and sharing it’ (CS 4,3)It’s about having a common goal and sharing it’ (CS 4,3)

– Understand the staff, be consistent and Understand the staff, be consistent and recognise when staff need helprecognise when staff need help

‘‘You have to be involved and talk to everyone You have to be involved and talk to everyone in every department every day’ (CS 1,3)in every department every day’ (CS 1,3)

– Be supportive and flexible Be supportive and flexible ‘‘XXX has his finger on the pulse. He’s a manager, XXX has his finger on the pulse. He’s a manager,

you don’t get many. Some people put the badge you don’t get many. Some people put the badge on but that doesn’t make them managers’ (CS 1,3)on but that doesn’t make them managers’ (CS 1,3)


AuditAudit– Access and use high quality reliable data in Access and use high quality reliable data in

order to understand the problems and how order to understand the problems and how they change over timethey change over time

‘‘Measure success and celebrate when good’ (CS Measure success and celebrate when good’ (CS

4,3)4,3)

‘‘We have a daily control routine and update the We have a daily control routine and update the

store team weekly on results’ (CS 1,2)store team weekly on results’ (CS 1,2)


These Findings Suggest That...These Findings Suggest That...

High shrink in hot stores is mostly a High shrink in hot stores is mostly a function of poor management and lack function of poor management and lack of adherence to proceduresof adherence to procedures

The environment affects shrinkage but The environment affects shrinkage but good management responds to the good management responds to the context and develops effective context and develops effective strategies to meet the challenge strategies to meet the challenge

The Hot ConceptThe Hot Concept

People

Places

Products Processes

For a free copy of the final For a free copy of the final report email:report email:

[email protected]@le.ac.uk

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

Documents

systematic approachunlock

intra company collaborationwho

hot conceptfocus

systemic approach

process failures firstfocus

uk ecr south africa

problem of shrinkageco

incentive schemes