Security Registers at Retail
You may not think 1.44 percent sounds like much. But if you’re a retailer or an electronic security company serving the retail market, 1.44 percent is a very big number and incentive. How big? According to the 2007 University of Florida National Retail Security Survey (NRSS), it adds up to nearly $35 billion in shrinkage for the nation’s major retailers.
To combat those losses, research and consulting firm The Freedonia Group reports retailers were expected to spend in excess of $2.7 billion on loss prevention (LP) technologies in 2008, including video surveillance, electronic article surveillance (EAS), intrusion detection and access control systems.
While the mean retail shrinkage rate steadily declined since topping out at 1.95 percent in 1994, recent developments indicate retail LP departments cannot afford to rest on their laurels. As the economy weakened in early 2008 en route to a lousy year capped by a dismal holiday shopping season, retailers faced the onslaught of a triple-edged sword — fewer shoppers, more shoplifters and rising employee theft.
Daunting as this quagmire of problems and challenges might be for retailers, the reality is it represents a world of opportunity for security dealers and integrators looking to serve the national, regional or local retail markets. A firm understanding of the landscape and trends will help security providers deploy the appropriate technology and services to fulfill retailers’ needs and expectations.
Security as a Profit Center
From a security standpoint, retailers are in a difficult situation. They know a percentage of those entering their stores will not be paying customers, but will leave with merchandise anyway. This problem is compounded by the need for open merchandising, as sales increase proportionately when customers can look at and touch products.
“Lock up everything and you’ll lock up your sales along with it,” says Paul Jones, vice president of asset protection for the Retail Industry Leaders Association (RILA). “One thing certain about retailers — they know their shrink! Above all, they strive to understand virtually everything about shrinkage and the reason is simple: profit.”
Retailers have been chipping away at shrinkage rates with unprecedented zeal because each dollar they preserve goes right to the bottom line. This is revenue retailers don’t need to advertise or promote to get, stay open late or mark it down to earn it. That’s why retailers tend to be better in tune with their LP challenges than other commercial security system end users.
Consequently, today’s retail LP departments are considered profit centers. That’s a far cry from the store detective and floorwalker days of yesteryear. LP has become a required science for retailers to remain in business.
“As retail LP practitioners, we approach reducing shrinkage a lot like an infectious disease specialist looks at a sick person’s condition,” says Jones. “We study the viruses and bacteria — infections that rob retailers of their financial vitality — and then prescribe a treatment regimen designed to fight those systemic problems. Shrinkage is a chronic condition that mutates at will and keeps attacking the retail body in different ways.”
Show Me the ROI
LP systems and purchases are all designed to achieve a return on investment (ROI) for retailers. According to Michael Grady, executive vice president of Pittsburg-based Vector Security, that’s where most electronic security companies drop off the conversation.
“Instead of selling our services on the basis of what the hardware can do, retailers want to hear about the ROI they will receive from using a specific piece of equipment, application or approach,” says Grady, who heads Vector’s National Accounts Division, one of North America’s top four retail LP services suppliers. “Retailers are more vulnerable to the death of 1,000 little cuts caused by employee theft and shoplifting. That’s what a security company servicing retailers of any size needs to understand; how to stop that bleeding.”
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