Canadian Retailer - Holiday 2016 - 27

700,259

Average loss caused by crimes perpetrated by
organized retail criminals in U.S. in 2015

Total Loss

What happens to a retailer's shrink if they
move their operations online? What will happen
when a retailer draws a greater percentage of
sales from online sources?
These are questions Stephen O'Keefe is asking.
O'Keefe is a former retail executive and is an
expert in loss prevention who today works as a
consultant to the retail industry and Retail Council of Canada. He says that as retailers harvest
greater percentage of
retail sales from online operations, they
may see a decline in
Level of fraud as a percenshrink rates because,
tage of revenue
historically, losses related to online sales
have not necessarily been reported as shrink.
But, he says, any decline should be treated as
illusory. Nobody should be lulled into a state of
bliss by shrinking shrinkage.
In fact, O'Keefe says, evaluating loss by measuring shrink may be an outdated concept. A better way of categorizing loss is to talk about Total
Loss, defined as the total economic impact of retail crime.
"If business wants to understand risk and exposure, they need to understand losses and take
all forms of loss into consideration. They need to
look at the whole package, not the shrink line,"
says O'Keefe.
With Total Loss, a retailer will measure all
forms of loss in the operations. Right now, online
stores respond differently to theft than bricksand-mortar stores. When a shoplifter takes merchandise off a shelf, the bricks-and-mortar retailer will account for the loss as theft, and the
value of the loss will show up in their statements
as a loss. Many online retailers take a different
approach. When a criminal steals a parcel off a
porch, the retailer will send a new package and
treat the replacement costs as a customer service expense, not as a loss. And they may mark

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chargebacks not as losses, but as some other
expense. As a result, a portion of the company's
loss resides in another category of expense.
Accurate measurement of shrink is the only
way retailers will be able to implement effective
counter-measures. Currently, online fraud protections require a multi-layered approach, says
Aaron Press, Director of Market Planning and
Payments for LexisNexis Risk Solutions. Retailers need to implement address and card verification services on their e-commerce platforms.
More robust systems, like device assessment and
fingerprinting, which can help identify fraudulent
devices accessing a retailer's services, along
with behavioural tools
and biometrics, can
help reduce instances
of fraud. But retailers
won't implement such
systems if they don't
see the problem in their
Percentage of fraud
stores-if they don't see
mitigation budgets
retailers spend on
the problem, they can't
manually reviewing
find solutions.
transactions flagged as
potentially fraudulent
Ultimately, retailers
will need to determine
how much loss they can afford. Retailers who get
paranoid about online risk might reject legitimate orders, anger customers, and leave money on
the table.
"If you want zero fraud, you'll have to be okay
with zero sales," says Press.
To get to that point-finding a comfortable level of loss-retailers must first calculate
the total loss, including losses from theft and
fraud, across every retail channel, and all the
expenses that go into preventing loss. With a
clear, accurate, honest view of loss, retailers can
better prepare to fight theft, determine their
profitability, and serve their customers online-
where they are increasingly shopping.
So the question retailers need to ask has
changed. Don't ask, what's the shrink rate? Instead, ask: What is the total loss?

25%

Sources: NRF, LexisNexis

THE LOSS PREVENTION ISSUE | CANADIAN RETAILER

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Table of Contents for the Digital Edition of Canadian Retailer - Holiday 2016