Introduction to ECR Europe and Shrinkage

1. Introduction to ECR Europe and Shrinkage Adrian BeckReader in CriminologyUniversity of Leicester, UK ECR South Africa, February 2006

2. ECR Europe Shrinkage Group • Established in 1999 • Made up of retailers, manufacturers and academics

3. The ECR Shrinkage Project Team

4. 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)

5. 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

6. Guiding Principles • Engage senior management and prioritise shrinkage • Identify accountabilities, measure, monitor and motivate

7. 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

8. 10p report Cashier error? Data mining... 14,836,947 products £12,000,000 shrinkage

9. Guiding Principles • Engage senior management and prioritise shrinkage • Identify accountabilities, measure, monitor and motivate • Promote inter and intra company collaboration

10. Who needs to be involved? • Manufacturer • Design team • Production • Supply Chain • Marketing • Sales • Retailer • Buyer/Merchandising • Loss Prevention • Supply Chain • Store Operations • Environmental agency

11. End to End Solutions Before After

12. 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

13. Wake Up Call! ECR Shrinkage Road Map CORPORATE POLICY Evaluate Plan Implement Map & Measure Develop Solutions Analyse

14. 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

15. The Hot Concept • Hot concept • Products • Places • People • Processes Places People Products Processes

16. 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

17. Focus on Process Failures First • Removes opportunity • Receipt process • Returns • Masks malicious activity • Delivers • Quick wins • Cost effective wins • Sustainable solutions

18. 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

19. 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

20. 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

22. The ECR Europe 2004 Shrinkage Survey Adrian BeckReader in CriminologyUniversity of Leicester, UK ECR South Africa, February 2006

23. Shrinkage Process failures Inter- company fraud Internal theft External theft Defining Shrinkage

24. What Does Shrinkage Mean? •  Deliberate Under/Over Delivery •  Invoice Errors •  Quality and Weight of Items Inter-Company Fraud •  Inventory Errors  Promotion Errors • Pricing Errors  Stock Going Out of Date •  Damage to Stock  Product Delivery/Scanning Errors Process Failures •  Theft of Stock and Cash •  ‘Grazing’ •  Collusion Internal Theft •  Shoplifting  Till Snatches •  Returning Stolen Goods  Burglary •  ‘Grazing’ External Theft

25. NONMALICIOUS MALICIOUS What Does Shrinkage Mean? Inter Company Fraud Internal Theft External Theft Process Failures Degree of Intent Probing Systems Exploiting Loopholes Mistakes Poor Planning Bad Management

26. Background and Methodology • Last survey in 1999 • Need for a new benchmark • Stock loss calculated at retail prices

27. 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

28. Counting the Cost Total loss equates to €66 million per day

29. 5 % Average Retailer Shrink Margin 4 % 1.84% 3 % Average Retailer Margin 4.83% 2 % Average Retailer Profit Margin 2.99% 1 % 0% Current Potential Retailer’s Missed Profit Opportunity 62% Margin Growth

30. Shareholder Value 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.

31. Shareholder Value 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.

32. Shareholder Value 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.

33. Shrinkage Retail Iceberg 49% Unknown Loss €9.5 billion 51%

34. 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

35. 24% Manufacturer Distribution 5% Retail Distribution 71% Retail Stores €5.7 Billion €1.2 Billion €17.3 Billion TOTAL€24.2 Billion + + = Location of the Problem

36. Causes of Retail Stock Loss

37. Causes of Retail Stock Loss

38. Causes of Retail Stock Loss

39. Retail Company Co-operation

40. Causes and Spending on Shrinkage

41. 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

42. 6 Steps to Successful Shrinkage Reduction

43. For a free copy of the final report email: bna@le.ac.uk

45. Exploring Risk: The ‘Hot’ Concept Adrian Beck Reader in Criminology University of Leicester ECR South Africa, February 2006

46. 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

47. Hot Products Example

48. Hot products in the Netherlands

49. What Causes Products to be Hot? Concealable Removable Available Valuable Enjoyable Disposable

50. Background • Supply chain hot spots Risk exists at particular points, e.g. delivery to store • Hot People • Marginalised, unmonitored, temporary, known offenders