Q&A: Canadian Retail Security Survey 2008

Canadian retailers are experiencing some challenging times. Turbulence in both the domestic and global economies made 2008 a particularly hard year for the retail industry, and those effects are expected to last well into 2010. But as the results of the recent Canadian Retail Security Survey 2008 indicate, while the losses due to retail shrink are comparable to 2007, theft – both internal and external – remains a pressing issue affecting retailers in Canada and so do the challenges of catching and preventing it.

To provide further insight into these findings, we sat down with PwC Canada’s director of Advisory Services, Ian Booler.

Why did you do this survey?
Released every year by PwC and the Retail Council of Canada, the Canadian Retail Security Survey provides insights on how the retail industry in Canada is dealing with the continually evolving risks and acts of theft. While the survey focuses on the medium to large retail segment, we feel that there is information that could apply to all sizes of retailers.

Our goal in the 2008 survey was to continue to provide insight to Canadian retailers with respect to the risks of retail theft, inventory loss and financial crimes, and how loss prevention measures are applied to control these risks. We also sought to explore the challenges brought on by the current economic climate.

What is the profile of the respondents?
The average net sales of respondents was $1.75 billion with an average store size of 34,853 square feet.

One-third of respondents were big-box operations and large department stores, while 43% were specialty boutique or small-box retail operations. The remaining 25% are made up of pharmacy retail (10%), hard goods (5%), service-related retail like movie theatres, convenience stores, etc. (5%) and multi-channel retailers (5%).

What were some of the key findings from the survey?
Our survey for 2008 shows that Canadian retailers lost just over $3.0 billion due to shrink, which translates into approximately $8.5 million per shopping day in Canada.

For instance, internal theft was the largest loss area (35%), with external theft (including organized crime) accounted for 32% of lost inventory. At the same time, 90% of respondents performed daily loss prevention measures at the opening and closing at each of their stores and 85% used proactive measures to detect cash theft by employees at least every seven days. Paperwork errors are also a consideration requiring time and effort by loss prevention professionals, accounting for 16% of the incidents reported by Canadian retailers.

The emergence of Radio Frequency Identification (RFID) as an enabling technology to provide efficiency and improved control over merchandise did not impact the respondent base. In fact, only 5% of respondents have invested in Radio Frequency Identification (RFID) technology to improve product control and efficiency. This may indicate that when it comes to the allocation of scarce resources, retailers are focused on only those investments with the strongest business case and the highest return on investment, particularly in light of the economic slowdown in the second half of 2008.

What steps are retailers taking to prevent theft?
We found that retailers employ multiple layers of inter-connected steps to prevent theft:

1. They employ strong governance practices for theft prevention with most retailers having policies in place that define the consequences of external theft, internal theft, vendor or supplier fraud and the pirating of intellectual property.
2. At the transactional level, retailers continue to employ proven monitoring techniques, leveraging data analysis tools to proactively identify “anomalies” in transaction activity that require further investigation.
3. Finally, similar to the findings of the 2007 survey, retailers also tended strongly towards prosecuting offenders caught in the act of stealing, sending a clear message that crime is not tolerated within their organizations. Sixty percent of respondents prosecute employees more than half of the time when an employee is caught stealing, while 79% prosecute customers more than half of the time in the same scenario.

Who do retailers hold accountable for loss prevention?
Survey results indicate that store operations staff are held most accountable for prevention of losses at the store level. Seventy percent said that this group is most responsible, where 10% responded that the Loss Prevention department was most responsible. While we acknowledge that the respondent profile between the 2008 survey is different than that of the 2007 survey, the response in this area differs from the results of our 2007 survey. At that time, 29% of respondents felt that loss prevention was the responsibility of store operations staff and 52% indicated that it was the responsibility of all staff in the organization.

With a slowing economy in 2008 and 2009, and continued pressure to deliver profits, retailers are not only expecting the front-line store staff to generate increased sales; they are also counting on these same individuals to safeguard profits by minimizing store-level losses due to both external and internal theft.

What preventative and detective methods are retailers using to prevent loss?
We know that retailers are challenged to monitor the millions of transactions that they process in the course of conducting business. They typically use various preventative and detective measures and the nature and frequency of these measures are important to establishing an appropriate control environment.

Ninety percent of respondents indicated that they perform daily loss prevention measures both at the opening and the closing of each of their stores. In addition, 85% of the Canadian retailers surveyed use proactive measures to detect cash theft by employees at a frequency of at least every seven days.

We are seeing that an effective combination of store-level procedures and monitoring activities from a corporate office has become commonly accepted as the best practice in monitoring risks of losses. The combination of multiple measures allows retailers to detect theft that may have previously gone undetected.

What areas are high priorities for Canadian retailers when it comes to security?
The losses related to fraud from returns, credit cards or gift cards remain high areas of concern and considerable sources for loss for most retailers. While respondents indicated they have resources dedicated to preventing losses, they are still heavily reliant on the staff working on the front lines.

We believe that the appropriate combination of people, technology and processes enables a successful foundation for risk control. As such, these areas should be a priority for retailers looking to control shrink.

Within the people category, collaboration between front-line staff and dedicated loss prevention personnel is essential to adequately protect against theft. The people element has become even more important in the current economic environment with more retailers looking to implement best practices in this area to help mitigate losses and keep operating costs in check.

Overall, our survey found that all companies are looking to do more with less and staff on the front-line will be counted on even more in the coming year.