How to Implement the Total Retail Loss Model
This is a follow on post from our previous blog post, found here.
In this blog post, we will discuss how to measure the value of retail loss as outlined in Professor Adrian Beck’s Total Retail Loss typology. We will discuss many of the categories of loss and provide actionable solutions for loss prevention and analysis.
Measuring the Value of Retail Loss
Beck’s Typology outlines a much more thorough definition of loss than just the loss of merchandise. It is important, therefore, to identify how each category of loss will be measured. There are three types of loss to be valued: Assets, Cash, and Margin.
Assets include things like merchandise, buildings, and vehicles. Examples of cash loss include; payments for fraudulently returned stock, cash lost or stolen from stores, cash paid to cover any regulatory or non-compliance fines, and payments for workers’ compensation claims and other general liabilities. Examples of margin loss includes; credit card charge backs, voucher scams, loyalty card abuse, customer fraud, and lost profit from out of stock merchandise.
Malicious Store Loss
The category malicious store loss includes several sub-categories:
- External Theft: measured by the value at cost price of any stock that is known to have been stolen by a third (external) party. Measure: Cost. Form of Loss : Asset
- Internal Theft: measured by the value at cost price of any stock that has been identified as stolen by employees of the company. Measure: Cost. Form of Loss: Asset
- Customer Fraud: there are a range of frauds that can be committed by customers. These include and are measured by; Returns Fraud (calculated as the full retail value of the goods), Credit/ Gift Card Frauds (calculated as cost price of goods), and Stolen Credit/ Bank Cards (calculated as the full retail value of the goods). Measure: Cost & Retail Value. Form of Loss: Asset, Cash, and Margin.
- Cash Theft: measured by the total value of stolen cash where the loss is known and malicious. Measure: Cost. Form of Loss: Cash.
- Burglary, Criminal Damage and Arson: measured by the total value of each of these incidents. Measure: Cost. Form of Loss: Asset.
Non-Malicious Corporate Loss
The category non-malicious corporate loss includes the following sub-categories:
- Workers Compensation: measured by the value of all incidents whereby the retailer is liable to compensate for any employment related injury. Form of Loss: Cash
- General Liabilities: measured by the value of all liabilities paid to customers and any other third party. Form of Loss: Cash
- Regulatory Fines: measured by the value of all payments made for fines related to breaches in regulatory compliance. This also includes any other instance where the company is found liable for payments related to unsatisfactory activities or behaviour. Form of Loss: Cash
Calculating Total Retail Loss
It is likely that the retail industry will adopt the Total Retail Loss Typology for bench-marking in the near future. However, Beck notes that it is unlikely that many companies will want to share such a high level of detail with others. Beck views his model as useful as a tool for individual companies to gain an improved understanding of their own picture of loss and how best to respond to it. He then explains that when calculating Retail Loss, it is up to the individual company to decide how to best quantify this figure. For instance, it might happen that the value of the sum of all of the categories of loss can be calculated as a percentage of overall turnover or as a proportion of overall profit generated.
A real value of Total Retail Loss is in understanding how the 33 categories of loss correlate with each other as a proportion of the total loss to the business. Businesses should look at the main drivers of loss and evaluate how their resources might be better allocated to deal with loss.
Actionable Retail Intelligence
Retail Loss Prevention Teams are well regarded for their problem solving skills. Beck recommends that LP Teams be given a challenge to address a wider range of retail losses. Cloud by Ocucon provides LP Teams with actionable long-term data which enhances problem solving.
Adopting the Total Retail Loss typology improves business decision making. In particular, businesses are able to more effectively evaluate retail investments. In order to do this, business need high quality data. Cloud by Ocucon removes physical limitations on the amount of surveillance footage a retailer can save, enabling the retailer to take a long-term view of both sales and losses so as to prevent loss-making cross functional exchanges.
Cloud by Ocucon provides loss prevention teams with actionable long-term data which enhances problem solving and helps LP investigate a wider range of retail loss.
Finally, the impact of TRL is assessed over the long-term. Cloud by Ocucon provides long-term evidence, as opposed to data being traditionally stored over the short-term. Ocucon supports every data point behind retail loss. The retailer simply logs-in to the Ocucon portal and is able to take a long-term analysis and view of losses and any evidence. To learn more about Cloud by Ocucon, contact us today.