Retail Loss Prevention

Retail organisations are currently confronted with unparalleled challenges in their quest to remain profitable amidst the UK economy's slow recovery post-Brexit and the fallout from the COVID-19 pandemic. These challenges are further compounded by the cost-of-living crisis, geopolitical unrest, and impending regulatory changes. As per the British Retail Consortium's (BRC) Crime Survey 2023, the total cost of retail crime amounted to a staggering £1.76 billion in 2021/22¹. Of this colossal sum, a staggering £953 million was lost to customer theft alone, underscoring the dire need for effective loss prevention measures in the retail industry.

Moreover, businesses are grappling with shifting consumer behaviours, digital transformation, and a decline in impulse purchases due to the waning popularity of high street retail. Formerly successful business models are now at risk. Several recent media reports suggest that shoplifting has increased by 25% in the past year and several retailers in the UK and globally are re-thinking their use of self-checkout tills. With intensifying global competition and dwindling profit margins, it is no longer tenable to absorb losses stemming from fraud, waste, and abuse as a cost of doing business. Thus, the need to act now is imperative and cannot be delayed any further.

Proactive monitoring is key
 

The volume and frequency of transactions in the retail industry is set to grow exponentially as retailers increasingly drive traffic to their online channels. While these digital changes help to boost revenue, they also present significant challenges in countering fraud from an operational perspective. Sorting through vast amounts of data, keeping up with new fraud techniques, and making timely decisions are no small feats. In the face of these imminent threats, a knee-jerk reaction to investigating fraud is often to increase the resource pool in the hope of curbing losses. However, this approach is only suitable as a short-term solution due to the commercial implications and the increased operational expenditure often dilutes the value of fraud savings.

Retailers are not complacent in their efforts to combat fraud. We have observed a growing trend towards the adoption of cutting-edge technology, such as computer vision, to screen CCTV images and analyse customers' actions and body language. This technology, when combined with other tools, can be utilised to detect malicious barcode swaps on articles and be extended to inventory monitoring. The use of AI for this loss prevention use-case is still in its infancy, and if not calibrated correctly, it has the potential to cause unwanted friction and generate a high volume of false positive alerts. However, by expanding the purview beyond conventional data assets, organisations can unlock the potential to elevate loss prevention capabilities and respond to emerging threats with greater agility.

Confronted with an ever-accelerating pace of attacks, numerous organisations are prioritising short-term solutions, potentially blinding themselves to the mounting fraud challenges they face. The lack of visibility on their own data and the inability to derive actionable insights from them means that they are unable to take timely action to prevent losses linked to shrinkage. Left unchecked, these operational losses can have a direct impact on the company's bottom line, potentially affecting share value, eroding customer trust, and exposing the business to regulatory enforcement. In parallel, fraudsters are becoming increasingly sophisticated and adept at masquerading as legitimate buyers. The key to unlocking this industry challenge lies upstream, and as fraud practitioners will know, the devil is in the data.

Unlocking the power of analytics
 

The deployment of analytics presents an innovative solution to age-old problems. From the proactive exploration of data to the risk-scoring of resolved entities and the use of machine learning to aid with operational heavy lifting, loss prevention analytics can deliver both tactical and strategic value. Further overlays, such as the use of Network Analytics, can help uncover complex, adverse, and risky collusive behaviour. The benefits, in addition to reducing losses, are compelling: accelerated time to value, ease of decision-making, optimisation of resources, and reduced investigation time are all significant advantages.

In our view, reducing shrinkage marks only the initial step of a much broader journey. Organisations should strive to leverage the synergies of data optimisation, process reviews, and technology assessments delivered through loss prevention programs to deliver strategic value across business lines. By adopting a bilateral approach, we can increase profitability by reducing margin losses in a follow-up or parallel phase. An analytics-driven optimisation roadmap can help expedite the path to value through case prioritisation, process automation, and organic value creation, all powered by a palette of AI tools.

For more information on proactive, analytics-driven loss prevention programmes, contact our Forensic Technology and Analytics Services team.

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Reference

¹ BRC Crime Survey 2023