If you had to choose one word to describe retailing, it would be ‘change’. While it has long been a fundamental part of most societies, it is not something that can ever be described as static and unchanging. Yes, the fundamentals of retailing have always remained the same – various types of goods being offered for sale to those willing to buy – but how this is carried out is a forever evolving. This is driven by competition – retailers and their suppliers constantly vying to attract customers to buy their wares in order to make a profit.
Innovation in retailing can prove highly successful and profitable for the adaptive retailer, such as the move in Grocery in the 1950/60s to open display, where customers began selecting products themselves and taking them to a fixed point where a cashier arranged payment. At the time, this was transformational – it demonstrated that shoppers bought more when they had the opportunity to browse and handle products themselves, rather than simply viewing them from behind a counter – it showed rates of consumption can be influenced by retail practices. Indeed shoppers not only preferred this approach, but it also proved to be highly profitable for retailers as well – the proverbial ‘win-win’.
Perhaps the most recent seismic change has been the growth of E-commerce, enabling consumers to browse, purchase and have delivered to their homes, often within 24 hours, products they wish to purchase. This has proved to be hugely popular but it has also driven yet more competition. Gone are the days when retailers can rely exclusively upon locality as a driver of footfall and loyalty. Shoppers now have access to a global marketplace accessible through their mobile device – why shop at the local store when you can access far more products online, very often at a cheaper price, and not have to leave the comfort of your living room?
For Bricks and Mortar retailers, this has created a real challenge in terms of continuing to attract consumers to their stores. One way to do this has been to examine the shopper experience and ensure that it minimises irritations and inconveniences that may drive increasingly discerning shoppers away. In particular, shopper surveys have shown that one of the biggest irritants is queuing/standing in line waiting to pay for products. As such, there has been a drive to reduce these frustration factors in the shopping journey: creating a more ‘frictionless’ shopping experience. It seems hard not to agree with this – why would you not want to remove as many obstacles, inconveniences and irritations that a shopper may face while visiting a retail store?
The Retail Risk Conundrum
Part of the answer comes in understanding why many of these factors were ever put in place in a retail store. For the most part, points of friction, particularly around the checkout are there to reduce the risk of losing profits through customers not paying for all the products they wish to purchase. Problems such as customer and staff theft are very longstanding, costing billions of dollars a year. Indeed, one estimate suggests that global retail losses are equivalent to the combined Gross Domestic Product (GDP) of four countries: New Zealand, Kuwait, Luxembourg and Iceland!
Indeed, retail losses can be a considerable drain on a business’ profitability and if left unchecked, could spell financial disaster. As such, retailers put in place a series of checks, balances and controls
to try and minimise their risk, such as trained staff scanning items, product protection devices attached to high risk, audit controls to ensure staff are following the correct processes around payments, refunds and discounting, and so on.
Balancing Friction and Risk
Retailers have essentially two options, neither of which are mutually exclusive. On the one hand, retailers could just accept that their level of losses will increase as they minimise customer friction points, hoping that they will be more than offset by potential reductions in costs (such as employing fewer checkout staff) and an increase in sales as they attract more shoppers to their stores. On the other hand, they can try to evolve their loss prevention strategy to minimise the new risks that they face. For instance, developments in Machine Learning are offering new ways to better control self-checkout areas, while the use of RFID systems can help retailers better understand where, when and how losses are occurring to help them build more targeted intervention strategies.
For the most part, the latter approach is likely to be much more sustainable than the former, but it does require a detailed understanding of the consequences and costs of business choices around reducing friction, and a loss prevention function sufficiently dynamic and data driven to respond to the new challenges. Either way, loss prevention teams will have to be as evolutionary in their approach as the businesses within which they operate – frictionless loss prevention may be the new frontier in retailing!