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The Rise of E-commerce: Managing an Evolving Retail Risk Landscape

January 13, 2021
Professor Adrian Beck

As the retail sector continues to grapple with the consequences of the COVID-19 Pandemic, one of the striking trends thus far has been the considerable growth in the percentage of retail sales now taking place via E-commerce. While in many ways this is an inevitable and logical outcome of large swathes of consumers around the globe being confined to their homes, with bricks and mortar retailing closed for months at a time, it is very much part of a longer-term trend of shoppers increasingly choosing to buy products online. In countries such as the UK, where E-commerce has an especially strong foothold, 2020 witnessed for the first time, E-commerce sales accounting for more than one-third of all retail sales. In the US, the COVID-19 Pandemic has equally turbo-charged the move towards online shopping, with the second quarter of 2020 seeing it account for about one-in-six of all retail sales. No doubt the encouraging news of vaccines becoming available in early 2021 will be the proverbial shot-in-the-arm for bricks and mortar retailing, but the fact of the matter is that E-commerce has become an established and fundamental part of the retail landscape. For the loss prevention industry, this increasingly presents a new and important chapter in its development, a broadening and deepening of its potential role and responsibilities, and in many respects a significant opportunity to re-enforce its value to the retail sector. What seems clear is that E-commerce retailing presents loss prevention teams with a very different retail risk landscape to be navigated – one that contains new challenges alongside those that have been apparent in ‘traditional’ retailing for many years. The growing importance of both understanding and effectively managing retail losses associated with E-commerce was very apparent in the development of the Total Retail Loss (TRL) concept. Back in 2016 when the first TRL typology was published, out of the 33 categories of loss listed as measurable and meaningful, E-commerce was represented by only two – Credit Card Chargebacks and Consumer Frauds. Fast forward to the latest version of the TRL typology (2019) and E-commerce categories now represent 26% of the types of loss included – its growing significance and capacity to be more effectively measured is readily apparent.

It would seem, therefore, that getting to grips with managing E-commerce-related retail losses is the next frontier for loss prevention practitioners. Here are some key issues that will be important to consider.

The Importance of Data and Data Analytics: If there are any benefits to be had from E-commerce-related losses it is that they typically leave an identifiable ‘e-fingerprint’ – a data trail that can be analysed and interrogated to better answer the ‘who’, ‘when’, ‘where’, and ‘how’ questions, something which is usually very hard to do when tackling unknown losses (shrinkage) occurring in retail stores. This is a fundamental distinction and one that loss prevention practitioners should ensure is a key part of their E-commerce loss prevention strategy. They need to make sure that all the relevant data pertaining to E-commerce losses (in the broadest sense as described in the TRL concept) is being collected and collated so that it is capable of being used to inform business decisions.

Developing New Skills, New Capabilities: Making sense of E-commerce-related data and navigating this new risk landscape will require loss prevention teams to develop new skills and capabilities – thwarting an online fraudster is very different to tackling a drug-fuelled shop thief. Teams will need to have the capability to utilise software systems to help them understand existing as well as new and emerging risks, and to manage them effectively. More than ever, loss prevention teams will need to fully integrate their work with other functions in the business to ensure it dovetails appropriately with the organisation’s broader business choices.

Adopting a TRL Mindset: As detailed in the TRL reports, loss prevention teams need to increasingly embrace a more comprehensive understanding of what retail ‘loss’ means, especially when it comes to E-commerce. For instance, a recent ECR Retail Loss Group report showed that E-commerce activities can generate significant losses as a consequence of legitimate customer returns – a category of loss rarely if ever featuring in any breakdown of the likely causes of ‘shrinkage’. In many respects, the TRL concept can offer a valuable analytical lens to view the scale and extent of E-commerce (and other) losses. It is important, therefore, that a broad spectrum of retail losses is considered when beginning to address E-commerce-driven problems.

Keeping the Plates Spinning: For loss prevention practitioners operating in businesses offering E-commerce as well as more ‘traditional’ bricks and mortar retailing, the risk landscape continues to get ever more complex and demanding – a tough job is getting tougher still. It will be critical, therefore, that loss prevention executives ensure that they invest in both analytical systems to help them navigate this landscape, and the people that will be required to utilise them. In the world of retail loss, there is going to be more to do – leadership teams will need to become ever more adept at keeping all the retail risk plates spinning – having highly trained and supported teams will be essential in achieving this goal.

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