Sunday 20 September 2015

Walmart Shrinkage

Wal-Mart’s CFO announces 1.4% cost in annual results due to shrinkage
The retail behemoth has announced a charge which equated to 1.4% of their sales revenue. The presumption that the figure is accurate will still mean a cost of around $3-4 billion. The description of the losses has been based around outsiders stealing from stock rooms around the back of stores and customers stealing, paying for some goods and shoplifting some items. The CFO and company execs are asking the staff to be more vigilant and try to spot when theft occurs. Is this realistic for the staff to do, while they service customers?

Possible underlying causes
There are external influences such as the economic and social conditions of the region. Wal-Mart will, on the whole, provide access through their pricing to lower income groups. In addition, their business has a wider range of goods which may also attract theft as it allows a central place to acquire goods. This is of course all speculation. For instance, do Wholefoods or CVS have similar rates of theft and what are their policies or processes to reduce this loss?



Understanding shrinkage
Shrinkage is a term used in retail that describes losses but the source of these losses is between shoplifters, staff theft and losses through mistakes. The theft by staff can be from employees stealing directly or sweet heartening, which is when a staff member gives unauthorized discounts or do not charge for goods at the cash register. So the 1.4% cost to Wal-Mart will have various reasons that the CFO may not know about or if he does, needs to breakdown further the sources of that loss. Figures in the past have stated that shrinkage from staff accounts for 40% to 70% of the total retail losses. (Therefore, was the comment from the CFO at Wal-Mart a diplomatic response to not blame staff but to still provide a reason to the shareholders and the market? This is a question for another time).

Current retail processes in tacking shrinkage
The ability to isolate the cause of the losses will enable a retailer to tackle the issue. The causes will vary from retailer to retailer. For instance, luxury goods retailers may have more staff theft and less shoplifting, due to the nature of the protection of the display stock. One recent discussion with a Security Chief of a well-known luxury retailer revealed that their stock room had access control. But the process to review the access data was done at the end of each month, which in our opinion was too late. A person could become an employee, steal handbags worth tens of thousands (as these may not be part of a regular stock take due to the low volume of sales) and leave the company before the end of the month. Usually, a person will know within 2 weeks the processes and vulnerabilities of a business if their intent is to steal. Usually, this is enough time for an opportunistic thief as well.

Countering retail shrinkage indirectly
In a lot of cases, the majority of theft is economic and or social circumstance based, especially when it is small scale. The cost to society (through the efforts of policing and the courts) makes prosecution inefficient when there are other non-malicious circumstances are the motivator to steal. Corporations should, we think, think of the micro economic circumstances that exist that create the underlying causes. Foodbanks are a growing source of food supply to families and individuals who suffer from food insecurity and there may be a correlation in this and any shoplifting that takes place. A Sainsbury’s Local store in London runs donation boxes for depositing food for donations to foodbanks. This could be an informative and non-direct way to inform someone that there is source to help them. We would need to ask Sainsbury’s this question.

The answer is, therefore, to collect data first and understand the causalities of the source of shrinkage. Retailers cannot start to reduce shrinkage until they know where it is coming from and what products (and in some instances the services services) are being targeted. This parameter will vary from region to region and probably to the layout of the premises. We can use video and data analytics to assess the threat, much like the insider threat when company members are on company networks within an office or other work environment.

No comments:

Post a Comment