Total Retail Loss:
Developing a Global Standard for
Measuring Loss in Retail Organisations
Project Update and Discussion
Professor Adrian Beck
University of Leicester, UK
BACKGROUND
• Little consensus on what constitutes retail ‘loss’.
• The term ‘Shrink’ is widely used across the world but no
internationally agreed definition exists.
• Rapidly changing nature of retailing requires a
reconceptualization of how retailing defines loss.
• Role of LP teams needs to change to reflect growing business
complexity.
WHAT’S IN A NAME?
 Shrink definition varies enormously between companies, sectors and countries –
it even varies within some companies!
 What is included, excluded?
 Unknown loss?
 Mark downs?
 On line frauds?
 Known loss?
 Vendor fraud?
 Voucher scams?
 Process errors?
 Losses from out of stocks?
 Counterfeit notes??
 Cash Loss?
 Damage?
 Missed returns?
 Theft?
 Wastage?
 Customer compensation?
 Non Theft?
 Till errors?
 In-store use?
 Also little agreement on how shrink is measured
 Retail?
 Cost?
 Cost Plus?
WHY IS THIS NEEDED?
• This ambiguity of definition:
• Makes benchmarking unpredictable, unreliable and unhelpful
• Blurs boundaries of accountability
• Fragments control processes which provides opportunities for theft
• Can create a culture of ‘acceptable’ loss
• Growing retail complexity requires a radical review of what generates loss.
• Huge opportunity to identify the true cost of loss – realise the size of the profit
growth opportunity ‘locked’ within the business.
• Growing budget pressure requires a better understanding of where to prioritise
LP spend.
• Opportunity to make greater use across the business of the loss management
expertise within LP teams.
METHODOLOGY
• Review of existing literature.
• Meetings with retailers
• Electronic survey of retailers
• Retailer case studies to populate new model
NEXT STEPS
• Roll out of project to US retailers – broaden buy in and
improve applicability of model
• Write interim report to update European retail
community
• Prepare for broader global survey of Total Retail Loss
FEEDBACK AND QUESTIONS
• Key questions raised by electronic survey
• Opportunity for this group to contribute to the process
Total Retail Loss
Known Operational
Losses
Malicious
Nonmalicious
Unknown
Operational Losses
Supply Chain
Losses
Malicious
Nonmalicious
Corporate
Liabilities
Corporate
Policy Losses
Product
Contamination
Customer
Guarantees
Unplanned
Sales
External Theft
Waste
Internal Theft
Waste
Criminal Damage
Internal
Theft
Damage
Vendor Fraud
Damage
Burglary
Cash Loss
Out of Stocks
3rd Party
Logistics Theft
Counterfeit
Notes
Mark Downs
Natural Disasters
Voucher Scams
Pricing Errors
Health & Safety
Staff Discount
Abuse
Customer
Compensation
Fire
Missed Returns
Corporate Fraud
In-store Use
Currency
Exchange
Losses
Bomb Threats
Demonstrations
Online Fraud
Total Retail Loss
Should the word ‘retail’ appear?
How to measure loss?
Retail Prices 1
Cost 2
Cost Plus 0
Both (Retail and Cost) 2
Total Retail Loss
Known Operational
Losses
Unknown
Operational Losses
Supply Chain
Losses
I would go for Corporate Liabilities,
Corporate Policy Losses, Supply Chain Loss
and Store Loss.
Split Store loss into Malicious, NonMalicious, Unknown.
Corporate
Liabilities
Corporate
Policy Losses
Total Retail Loss
Known Operational
Losses
Nonmalicious
Malicious
100
100
100
External Theft
100
Internal
Theft
100
100
100
100
100
Corporate
Liabilities
88
75
Staff Disc/Loyalty
Card Abuse
100
100
88
90
88
Customer
Compensation
Missed Returns
90
75
In-store Use
90
Corporate
Policy Losses
Food Surplus - A few other retailers that, like us, provide food that would be
waste to charities (who sell the food on at a reduced rate to the poor for want
of a better word). Whilst this is a loss, I believe it should come under a
separate section to waste as although it is actual loss it is also Brand
enhancing.
We make an assumption here that the offending staff member has not been
caught during their first offence. We assume they make up some of our
Unknown Losses. “Loss Value of Incident” *15 [The average amount of times
they have committed the same offence without being caught]
Mark Downs
Voucher Scams
90
75
100
Pricing Errors
100
Supply Chain
Losses
100
Damage
Counterfeit
Notes
100
100
Waste
Cash Loss
88
Unknown
Operational Losses
100
Out of Stocks
Should we be including non malicious cash loss?
Counterfeit Vouchers?
Voucher & Coupon Scams?
How do we make this comparable?
Total Retail Loss
Known Operational
Losses
Unknown
Operational Losses
Supply Chain
Losses
62
100
100
Internal Theft
100
Waste
62
100
Vendor Fraud
88
Corporate
Policy Losses
Nonmalicious
Malicious
Do we need to capture unknown loss here as
well?
Corporate
Liabilities
100
100
Damage
62
3rd Party
Logistics Theft
I am confused as to why this is called out as
separate line
Feels like there should be more here....one I can think of would be shortage
claims / credits given to the stores. Some retailers don't allow for this but if a
pallet does not arrive, and the DC cannot find, then the store has to be credited
and the retailer needs to guess what happened to that pallet.
Total Retail Loss
Known Operational
Losses
Unknown
Operational Losses
Supply Chain
Losses
Should it be trying to measure reputational damage costs?
Corporate
Liabilities
Corporate
Policy Losses
100
100
Product
Contamination
100
100
Criminal Damage
Include counterfeit in this category
88
100
Burglary
Is criminal damage the same as vandalism?
90
81
Bomb Threats
100
100
Natural Disasters
100
100
Health & Safety
100
100
Fire
100
100
Corporate Fraud
90
Currency
Exchange
Losses
100
50
88
Demonstrations
88
100
Online Fraud
Total Retail Loss
Known Operational
Losses
Unknown
Operational Losses
Supply Chain
Losses
Not relevant to us; moving to measure these
Corporate
Liabilities
Corporate
Policy Losses
80
80
Customer
Guarantees
Unplanned
Sales
62
50
DISCUSSION POINTS
• How does this fit with your organisation’s current thinking on
measuring loss?
• How measurable is this typology in your organisation?
• In what ways can it be further improved?