October 20, 2022
By 
 Becky Corthell

Background

As we have seen with developments in Total Retail Loss, there is an ever growing array of events and activities that can generate retail losses. From thieves entering stores and taking products without paying for them through to companies themselves bringing faulty products into their businesses that end up generating unacceptably high levels of product returns, losses can manifest in many different ways across the retail landscape.

One of the key elements of the Total Retail Loss typology is differentiating between types of losses, in particular those that can be categorised as malicious – purposefully carried out by bad actors focussed upon personal gain, and those that are non-malicious – the result of errors, mistakes, bad decision making, and/or poorly defined and followed business processes, such as wastage or lost profits from out of stocks.

Both types of loss can be equally bad for a retail business but drawing a distinction between those types of losses that are malicious versus those that are non-malicious is extremely important in terms of not only developing appropriate ways to manage and prevent them, but also in terms of understanding how organisational responses can have effect on the outcome. For instance, studies have shown that it is often much harder to sustain lasting solutions to tackle various types of malicious loss than it is non-malicious forms of loss. It is important, therefore to understand why this happens.

The Ratchet Effect

The primary reason is the nature and intent of those responsible for different types of retail losses. When it comes to those generating malicious forms of loss, such as thieves, fraudsters and burglars, they are engaged in what can often be described as a constant evolutionary battle of attrition with those focussed upon trying to stop them. With the introduction of each new loss prevention ‘solution’, these malicious actors quickly embark upon a period of learning and adaptation to try and develop ways in which it can be negated/defeated.

For instance, a good example of this was the introduction of specialist Electronic Article Surveillance (EAS) product tags that were filled with a staining dye. These were designed to act as a powerful benefit denial deterrent as any attempt to remove the tag would in effect ruin the product (the dye would leak) and make it unsaleable. However, wily thieves quickly realised that if the stolen product and its tag was placed in a freezer, then the dye quickly froze turning it from a liquid to a powder that could then be easily removed from the product when the tag was broken, leaving it undamaged and available for re-sale.

This then required loss prevention teams to rethink their strategy to counter the ingenuity of offenders (such as putting anti-freeze in the dye!). Thieves then had to re-evaluate their approach to counter this new development and so on. This is known as the ‘ratchet effect’ – each incremental change from one side induces a change from the other, which in turn induces yet another change – an endless cycle of evolve, learn, adapt, defeat, evolve…. In criminology this is called the ‘loss prevention life cycle’, where an intervention that originally worked to reduce crime gradually fades over time as offenders become more familiar with it and develop approaches to negate its effects. Eventually the original intervention no longer works – its prevention cycle has been completed – and so it needs replacing with a new approach.

Sustainable Interventions

In stark contrast, interventions designed to deal with non-malicious forms of loss tend not to experience the same outcome and degree of attrition over time. This is because they are not generally caused by malign actors but are more a consequence of poor processes and business decisions. They are often due to genuine mistakes and errors in the way in which a business and its employees operate. For instance, date sensitive product may have to be thrown away before it has been sold because the process of price reduction to encourage a sale was not administered properly. Staff responsible for this may have been engaged in other activities or the device for printing markdown labels may have been broken. Either way, product has been lost due to a non-malicious cause.

Because of the non-malign nature of the root causes of these types of losses, when a viable solution is successfully identified and implemented, it tends to have a much longer shelf-life than those focussed upon malicious form of loss – there is not a determined and highly adaptable group of actors constantly probing to find its weak points. In addition, successful interventions for many forms of non-malicious loss are often based upon correcting loopholes and irregularities in existing processes and practices. All that is then required is routine monitoring to ensure they continue to be adhered to and remain fit for purpose. As such they are often much cheaper interventions than many of those designed to target malicious losses.

As retailing becomes ever more complex and challenging, it will undoubtedly generate yet more types of loss that need to be understood and managed. An important part of that process will be understanding whether the underlying root cause of any given loss is malicious versus non-malicious as this will play a key part in determining how they may best be prioritised, resolved and adequately controlled.

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