SURVEY: RETAILERS FEAR CUTS ENCOURAGE FRAUD 15


LOSSPREVENTION&SECURITY


Coalition government cuts mean more retailers fear the worst for their shrinkage fi gures with increased concerns over the link between unemployment and shop theft


prevention systems, processes and strategies by the UK’s leading retailers released at the Retail Fraud Conference held in London on 14 April.


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The survey asks more detailed questions than other shrinkage reports in order to fi ll some important knowledge gaps for both the retailers and the loss prevention supply industry.


Other key fi ndings include low investment


in fraud management systems, a disconnect between store and online shrink, increased trends in return goods fraud and a poor take-up of contactless payment technologies at the present time because of the perceived deployment costs. Independently researched by Martec


International, which interviewed the UK’s top 100 retailers with annual sales totalling £98.7 billion, the survey highlights the scale of current fraud threats and the mitigation methods either in place or not.


Key fi ndings included: • Shrinkage levels averaged 0.9% of sales, varying between 2.9% of sales for hospitality and leisure retailers to a low of 0.7% for home shopping retailers. With most retailers achieving pre-tax profi ts of 1.5-7% of sales, shrinkage levels of 0.9% represent a signifi cant dent in profi ts.


• Almost 60% of loss prevention executives believe that shrinkage will get worse in the life of this parliament, while 34% believe it will remain the same. This is due to the weak economy as people steal for ‘need rather than greed’.


• The biggest area of loss was shoplifting or external stock theft (34%), followed by employee theft (26% of respondents). Internal cash theft represented 10%.


• Store-based fraud prevention spend averaged 0.8% of sales, just under average shrinkage levels, But for 20%, the spend on loss prevention was higher than their shrinkage levels. For example, department


Online digital photo printing retailer, Photobox switched to internet payment services provider, Ayden in summer 2010, measuring the impact on conversion rates during the migration period. Clément Salvaire, Photobox sales and marketing director for Continental Europe, said: “With


the Adyen platform we have signifi cantly improved our payment funnel. We achieved a conversion improvement of 8% in average across Europe. Two main reasons for this are that we now propose all the local payment methods in our 15 markets and that we have removed two pages from the checkout process.”


MARCH/APRIL 2011 RETAIL TECHNOLOGY


his is one of the key fi ndings of Retail Fraud’s fi rst ever comprehensive survey into the use of retail loss


stores spent a far higher proportion of their sales on loss prevention than other retail sectors at 2.2%.


• At 0.3% of sales, online fraud prevention spending is much lower than instore, although some costs may be hidden for retailers new to online trading, as other departments such as fi nance and e-commerce carry out these functions. But as internet trading becomes a higher proportion of sales (currently 10.9% for the leading 100 UK retailers), then online loss prevention spend will increase.


• For most retailers interviewed, the head of loss prevention did not have responsibility for online fraud. As true multichannel retailing comes of age, the report said loss prevention departments may need to be restructured so all losses are managed together.


• Return fraud averages 0.17% of sales or almost 20% of total shrinkage. This included increased trends in ‘wardrobing’ clothes for special occasions and returning for full


refund, returning stolen merchandise for full price, receipt fraud and price switching.


• Alarms were used by 97% of store-based retailers, security cameras by 96% and card payment security systems by 95%. Online, the ‘must-have’ systems were online payment security, which was used by 91%, payer authentication (81%) and fraud screening (75%).


• Over the next three years, only two out of every 10 of those interviewed were being considering contactless payment methods. Although leisure and hospitality retailers averaged 3.5 out of 10, with fast food and coffee shop companies especially interested.


• Almost two thirds of retailers (64%) did not use dedicated fraud management systems.


• The fraudulent use of coupons was on the rise, but only 10% of retailers used any sort of system to detect and prevent this. As this is an area that is starting to impact on retailers’ bottom lines, this area of investment looks set to increase.


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