The consumer market has weathered a very long storm. Since 2008 retailers and restaurants have been on a roller coaster of hope and despair. Although there are some positive outlooks for the year (NRF predicts a 4.1% growth in 2014), it is doubtful anyone will be quick throw off the cautious and conservative decision-making attitudes of the past five years. Companies are faced with a loss prevention paradox. On the one hand, budget and personnel have seen decreases as a part of the cost-saving measures. Conversely the less efforts and resources allocated to this important function, the greater the chance that any savings will be eroded by increased losses. The situation suggests the need for a change in attitude and approach.
Sooner or later every profession or industry faces a revolution. A required shift in process and procedure to adapt to the new environment. It’s the Darwinism of business. Once upon a time every company wrote its own payroll checks. Today most use a service because it’s cheaper and more efficient…and its cheaper. There was a period when even mid-level managers could depend on a secretary to do most of the administrative work. Today we answer our own phones, type our own memos, and complete our own expense reports. Support functions are the first casualty of adaptation.
Loss prevention is an important, maybe even critical function, to any business. Strategies and personnel focused on protection of assets and profits can demonstrate an impressive return on the investment. But in today’s economic environment the measurement has become a lot more pragmatic. Relationships are important, as are many of the other intangible services of the LP function. They are not, however, directly measurable. Having an army to dispatch across the landscape doesn’t demonstrate a return in the same language used by the other operational functions. Like all evolutions, loss prevention needs to adapt and needs to do so quickly.
Shrink results and peace of mind used to be enough to justify loss prevention expenditures. The function served as an insurance policy, in that there was little appetite to discover the outcome of not having the support. The economic environment, however, has forced that test. While LP budgets and departments continue to diminish, shrink, as measured by the NRSS has remained fairly consistent. Based on previous beliefs we would have expected to see a tide of rising losses correlating to smaller departments and lower budgets. With that argument off the table, we need to find new and more effective methods to demonstrate a return on the investment.
I have little doubt that with prolonged avoidance of loss prevention, shrink and loss will rise to uncomfortable levels. I do, however, feel equally confident that investors, shareholders, and owners won’t return to a “business as usual” doctrine. LP business plans that recommend more human resources, promote value in the intangibles, and demonstrate ROI based on apprehension counts will not be well-received. The loss prevention of the future needs to think extreme efficiency and high effectiveness. Every person and every effort must demonstrate productive value. That means a new paradigm based on performance not effort.
The new Operator or LP leader will look to every method that protects profits in the most cost-effective and measurable manner. Companies will continue to require the LP function, they will continue their willingness to invest in the function, but they will expect a measurable return for every dollar spent. That return will be measured in various ways including shrink results, improved margins, recovered losses, and improved operations that directly impact sales and profits. In short, the old model of loss prevention won’t have a home in smaller, more flexible businesses.
My prediction and point may seem self-serving as I am an outsource provider of services. The LP landscape, however, indicates these things are already happening. Seasoned professionals and entire teams have found themselves displaced over the past half decade. The industry has changed and the LP function can either be the first mouse to the trap…or the second. To have a place in the new market we have to forget the comfortable luxuries of the past and embrace the smaller, more direct and efficient models used by those functions that were once a part of every company and are now handled as a paid for service. The teams that remain, need to consider how to use technology and data to be more nimble, effective and cost less. We don’t have the time or the money to be on airplanes, taking admin days or doing any less than something measurable when in a field location.
My opinion may not be very popular with my peers. Most of us would prefer a return to having our LP armies, our travel budgets, and being measured on shrink and apprehensions alone. Nothing in the economic forecast suggests those days are returning. Once a company lives without an expenditure they have little desire to reacquire it. We all want the cheese, but the best course is to learn from those departments and functions who have gone before us…or risk being the first mouse.
Ray Esposito, Sr. VP Strategic Development & Marketing at LP Innovations Inc