Introduction to ECR Europe
and Shrinkage
Adrian Beck
Reader in Criminology
University of Leicester, UK
ECR South Africa, February 2006
ECR Europe Shrinkage Group
Established in 1999
Made up of retailers, manufacturers and
academics
The ECR Shrinkage Project Team
Purpose of ECR Shrinkage Group
Raise awareness of the problem of shrinkage
Co-ordinate and sponsor cutting edge research
Encourage companies to address the problem
Promote a more systematic and systemic
approach to dealing with the problem (the ECR
Shrinkage Road Map)
Guiding Principles
– Engage senior management and prioritise
shrinkage: it is a consumer problem
Choice and ranges restricted
High margin products not listed
Products get locked up
– Consumers frustrated
Shelves go Empty
– New item impact reduced
– Consumers switch stores or brands
– Lower consumption
Guiding Principles
Engage senior management and prioritise
shrinkage
Identify accountabilities, measure, monitor
and motivate
Identify accountabilities,
measure, monitor and motivate
End to end accountability
– From store and product design to reverse logistics
Data accessibility, timeliness and granularity
– Mining the data warehouse
Monitor and generate transparency
– Stock counting
– Process audits
Incentivise staff
– Retailers with incentive schemes had lower levels of
shrinkage
Data mining...
14,836,947 products
Cashier
error?
£12,000,000 shrinkage
Guiding Principles
Engage senior management and prioritise
shrinkage
Identify accountabilities, measure, monitor
and motivate
Promote inter and intra company
collaboration
Who needs to be involved?
Manufacturer
–
–
–
–
–
Design team
Production
Supply Chain
Marketing
Sales
Retailer
–
–
–
–
Buyer/Merchandising
Loss Prevention
Supply Chain
Store Operations
Environmental agency
End to End Solutions
Before
After
Guiding Principles
Engage senior management and prioritise
shrinkage
Identify accountabilities, measure, monitor
and motivate
Promote inter and intra company
collaboration
Adopt a systemic and systematic
approach
ECR Shrinkage Road Map
CORPORATE POLICY
Evaluate
Implement
Develop Solutions
Plan
Map & Measure
Analyse
Guiding Principles
Engage senior management and prioritise
shrinkage
Identify accountabilities, measure, monitor
and motivate
Promote inter and intra company
collaboration
Adopt a systemic and systematic
approach
Unlock the value of the 'hot' concept
The Hot Concept
Hot concept
• Products
• Places
Places
• People
• Processes
People
Products
Processes
Guiding Principles
Engage senior management and prioritise
shrinkage
Identify accountabilities, measure, monitor and
motivate
Promote inter and intra company collaboration
Adopt a systemic and systematic approach
Unlock the value of the 'hot' concept
Focus on process failures first
Focus on Process Failures First
Removes opportunity
– Receipt process
– Returns
Masks malicious activity
Delivers
– Quick wins
– Cost effective wins
– Sustainable solutions
Guiding Principles
Engage senior management and prioritise
shrinkage
Identify accountabilities, measure, monitor and
motivate
Promote inter and intra company collaboration
Adopt a systemic and systematic approach
Unlock the value of the 'hot' concept
Focus on process failures first
Encourage innovation and experimentation
Encourage innovation and
experimentation
Keep ahead of the game
Initiate…….
– Pilot Studies on new ideas
– Road Map projects with suppliers
– Benchmarking against industry surveys
Experiment…..
– New solutions
– New store layouts
ECR survey showed that retailers who innovated
and experimented most had 20% lower
shrinkage
Guiding Principles
Engage senior management and prioritise
shrinkage
Identify accountabilities, measure, monitor and
motivate
Promote inter and intra company collaboration
Adopt a systemic and systematic approach
Unlock the value of the 'hot' concept
Focus on process failures first
Encourage innovation and experimentation
Document learning and disseminate success
The ECR Europe 2004
Shrinkage Survey
Adrian Beck
Reader in Criminology
University of Leicester, UK
ECR South Africa, February 2006
Defining Shrinkage
Shrinkage
Process
failures
Intercompany
fraud
Internal
theft
External
theft
What Does Shrinkage Mean?
Inter-Company
Fraud
 Deliberate Under/Over Delivery
 Invoice Errors
 Quality and Weight of Items
Process
Failures
 Inventory Errors  Promotion Errors
 Pricing Errors
 Stock Going Out of Date
 Damage to Stock  Product Delivery/Scanning Errors
Internal
Theft
 Theft of Stock and Cash
 ‘Grazing’
 Collusion
External
Theft
 Shoplifting
 Returning Stolen Goods
 ‘Grazing’
 Till Snatches
 Burglary
What Does Shrinkage Mean?
Inter Company
Fraud
Internal
Theft
MALICIOUS
External
Theft
Process
Failures
NON
MALICIOUS
Degree of Intent
Mistakes
Probing Systems
Poor Planning
Exploiting Loopholes
Bad Management
Background and Methodology
Last survey in 1999
Need for a new benchmark
Stock loss calculated at retail prices
Background and Methodology
26 countries surveyed (21 last survey)
250 retail companies and 44
manufacturers/suppliers contacted
Total FMCG sector valued at over €1 trillion
Sample represents 13.7% of retail companies
with a combined turnover of €137,214,920,000
Counting the Cost
Sector
Retail
% of
sales
1.84
Value (€ billions)
Manufacturer
0.57
5.7
Total
2.41
24.2
18.5
Total loss equates to €66 million per day
Retailer’s Missed Profit Opportunity
Average Retailer Margin
5%
4%
1.84%
3%
Average
Retailer
Shrink
Margin
4.83%
2%
1%
Average
Retailer
Profit
Margin
2.99%
0%
Current
Potential
Shareholder 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.
Shareholder Value
Net Income Shareholder Value
€1 Incremental Sales
€ 0.15
€ 3.00
€1 Inventory Reduction
€ 0.20
€ 4.00
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.
Shareholder Value
Net Income Shareholder Value
€1 Incremental Sales
€ 0.15
€ 3.00
€1 Inventory Reduction
€ 0.20
€ 4.00
€1 Shrinkage Reduction
€ 0.70
€ 14.00
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.
Shrinkage Retail Iceberg
49%
51%
Unknown Loss
€9.5 billion
Impact of the Iceberg
Lack of visibility
Lack of awareness
–
–
–
–
When did it happen?
Where did it happen?
How did it happen?
Who was responsible?
Lack of accountability
Prioritisation of the most visible/acceptable
Location of the Problem
24%
5%
71%
Manufacturer
Distribution
Retail
Distribution
Retail
Stores
€5.7 Billion
+
€1.2 Billion
+
€17.3 Billion
=
TOTAL
€24.2 Billion
Causes of Retail Stock Loss
Inter-Com pany
Fraud
7%
External Theft
38%
Process
Failures
27%
Internal Theft
28%
Causes of Retail Stock Loss
Causes of Retail Stock Loss
Retail Company Co-operation
Security/Loss Prevention
Store Mangt
Board of Directors
Auditing
Supply Chain Mangt
Logistics
Finance
Buying
Human Resources
IT Dept
Legal Dept
Planning and Design
Marketing
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Per cent
High Involved
Regularly Involved
Hardly Involved
100%
Causes and Spending on Shrinkage
60
Spending
Cause
60
50
40
38
30
27 28
26
20
10
9
4
7
0
External
Internal
Process
Inter Company
Other Survey Highlights
Companies with a corporate policy
Companies that prioritised stock loss
Companies that provided bonuses for good
stock loss results
Companies with higher levels on inter-company
co-operation
Companies that carried out a greater number of
shrink reduction projects…..
… All had lower levels of stock loss
6 Steps to
Successful 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
report email:
bna@le.ac.uk
Exploring Risk: The ‘Hot’
Concept
Adrian Beck
Reader in Criminology
University of Leicester
ECR South Africa, February 2006
Background
Risk is not evenly distributed. It is focussed on
particular products, places, people, processes
Crime hot spots
3% of locations in some cities
account for 50% of recorded crime
Hot products
Some products much more at risk than others
Hot Products Example
Hot products in
the Netherlands
What Causes Products to be Hot?
Concealable
Removable
Available
Valuable
Enjoyable
Disposable
Background
Supply chain hot spots
Risk exists at particular points,
e.g. delivery to store
Hot People
– Marginalised, unmonitored, temporary, known
offenders
Value of Understanding the ‘Hot’ Concept
Avoids spreading valuable resources too thinly
Focus on the vital few amongst the trivial many
Rapid impact
Greatest return
Possible diffusion of benefits
Hot Store Mythology
Social Geography
‘Bad areas cause high shrinkage’
Management
‘Good results follow good managers’
The Hot Store Project: From Myth to Reality
ECR project launched to understand the
issues relating to store losses
Research questions:
Across Europe, what is the profile of store
losses?
What makes a store ‘hot’?
Methodology
Survey:
– Contacted a sample of European retailers
– Gathered shrink details for all outlets
Case Studies:
– 4 companies: Ahold (Czech); Feira Nova
(Portugal); Tesco (UK); Wickes (UK):
– Collected estate-wide data
– Visited 4 stores per company (2 ‘good’, 2 ‘bad’)
– Interviewed key store staff
European Store Shrinkage Rate
Number of Stores
1000
Low Stores
Average Stores
Hot Stores
4.8%
89.6%
5.7%
800
600
400
200
0
-3
-2
-1
0
1
2
3
4
5
Shrinkage as a % of turnover
6
7
7+
Estate-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 Attributes
Store manager and team see shrinkage
as their responsibility BUT blame the
environment, the staff, outsiders, the
company…
‘there is only so much we can do to control
the situation’ (CS 2,1)
‘the stock deliveries are never correct – we
always inherit the problem’ (CS 4,2)
Hot Stores Attributes
Company doesn’t make manager
accountable for losses at the store
‘when managers move store they are not
held accountable for what’s left behind’ (CS
1,1)
Hot Stores Attributes
Company procedures are not followed
‘we should be doing 70 staff searches a week but
we only ever manage 40’ (CS 4,1)
‘we haven’t been having the weekly
team shrinkage meeting’ (CS 4,2)
‘staff don’t fill in the wastage
reports properly’ (CS 4,3)
‘the backroom area always looks
like a bomb site’ (CS 2,4)
Hot Stores Attributes
The manager does not provide support,
leadership and control
‘I don’t trust my staff and they don’t do
what I tell them to do’ (CS 2,4)
‘there is collusion between the security guards
and the cashiers. The cashiers are incompetent.
The head of the cashiers knows what to do she
just doesn’t do it.’ (CS 4,3)
Hot Stores Attributes
Store management does not know the
extent of the problem
‘I would have to say that Mach 3 is highly stolen
in this store because that’s what everybody in
the industry says’ (CS 1,2)
‘I can never reconcile my inventory…’ (CS 3,4)
‘we don’t keep a record of security incidents in the
store – we tell head office and then throw the
data away’ (CS 1,2)
The 4 ‘A’s to Preventing Stores Becoming Hot
Accountability
Action
Attitude
Audit
The 4 ‘A’s to Preventing Stores Becoming Hot
Accountability
– The manager owns the problem and
prioritises it all day, every day
‘keeping my eye on the ball’ (CS 4,2)
– The manager is highly committed
to reducing shrinkage
‘as important as sales’ (CS 4,1)
The 4 ‘A’s to Preventing Stores Becoming Hot
Action
– Store context needs to be understood and
appropriate actions taken to meet the challenges
‘this is a tough store but we know it and
develop plans accordingly’ (CS 4,4)
– All procedures must be adhered to consistently:
they must be robust, standardised and institutionalised
‘we know what we need to do – good procedures
already exist’ (CS 2,3)
– Backroom areas - keep them neat and tidy
as a message to all staff
‘there is no reason why the backroom shouldn’t
be as clean as the shopfloor’ (CS 2,3)
Good management is the solution
100%
96%
90%
73%
80%
70%
56%
60%
Compliance
Shrink
50%
40%
30%
20%
10%
0%
4.7%
1.5%
Store 1
Store 2
Source: Ahold Hypermarkets: Czech: 2004
13%
8.0%
4.5%
Store 3
Store 4
The 4 ‘A’s to Preventing Stores Becoming Hot
Attitude
– Build a cohesive management team
‘Vision. Mission. Obsession’ (CS 3,1)
‘You need the right people with you and for you.
It’s about having a common goal and sharing it’ (CS 4,3)
– Understand the staff, be consistent and
recognise when staff need help
‘You have to be involved and talk to everyone
in every department every day’ (CS 1,3)
– Be supportive and flexible
‘XXX has his finger on the pulse. He’s a manager,
you don’t get many. Some people put the badge
on but that doesn’t make them managers’ (CS 1,3)
The 4 ‘A’s to Preventing Stores Becoming Hot
Audit
– Access and use high quality reliable data in
order to understand the problems and how
they change over time
‘Measure success and celebrate when good’ (CS
4,3)
‘We have a daily control routine and update the
store team weekly on results’ (CS 1,2)
These Findings Suggest That...
High shrink in hot stores is mostly a
function of poor management and lack
of adherence to procedures
The environment affects shrinkage but
good management responds to the
context and develops effective
strategies to meet the challenge
The Hot Concept
Places
People
Products
Processes
For a free copy of the final
report email:
bna@le.ac.uk