David Erasmus provides a GCC perspective on the main factors contributing to retail shrinkage in the region.

The GCC has an enviable reputation for low levels of crime. And yet the most recent published figure for retail shrinkage, the 2011 Global Retail Theft Barometer (GRTB), records shrinkage for the Middle East & Africa at 1.71 as a % of Cost of Goods Sold (COGS); higher than any other region including North America, Europe, Asia-Pacific and Latin America.

Is that really a fair reflection of the state of Gulf retail today?

Without being overly critical of the GRTB, this survey included only two countries from Africa, namely South Africa and Morocco, whilst it included none of the GCC countries. Furthermore factors contributing to retail shrinkage in Africa and the Middle East are fundamentally different. Consolidating the figures from these two regions into a single figure will, inevitably, skew the results for both.

Localised surveys conducted in Africa, post 2011, would suggest that shrinkage is significantly higher than 1.71%. Furthermore, shrinkage in different African countries also varies significantly from one country to the next.

Since 2011 the Middle East and Africa has not been included in the annual GRTB report again. Middle Eastern Retailers thus only have this last recorded shrinkage benchmark to refer to – one which most retailers will agree does not accurately reflect shrinkage levels in the region. However, in the absence of any current, credible data, how are retailers to know if their own performance is better or worse than they should expect?

Shrinkage in context of the GCC

The unfortunate reality is that shrinkage statistics are not readily available for the Middle East as most retailers do not share these figures for a myriad of reasons, in particular the fact that most are family owned businesses that are not required to declare earnings, profits & losses or provide other relevant information for the public record.

Nonetheless, experience across the GCC Region suggests that the majority of Retailers have been recording significantly lower shrinkage than the 1.71% published by GRTB in 2011 and ever since then. Informal collaboration amongst Middle East Loss Prevention Practitioners would suggest that the average shrinkage figure for the region is roughly 1.25% whilst best-in-class retailers are claiming to have shrinkage of as low as 0.55%.

However, it is also very apparent that the sources of shrinkage in the Middle East are very different to other regions in relation to both malicious and non-malicious factors.

Malicious sources of shrinkage such as employee theft and shoplifting are significantly lower in the Middle East and the GCC for the following reasons:

  • The workforce demographic is primarily comprised of expatriates that are screened prior to entering the country thus eliminating those with prior criminal records.
  • Criminal prosecution for theft is followed by immediate deportation after serving the sentence that was handed down by the Court.
  • The local population is relatively wealthy compared to most other regions and there is little need to steal whilst such behaviour conflicts with cultural and religious beliefs.

Conversely, non-malicious sources of shrinkage are higher than international benchmarks for the following reasons:

  • The diversity of the workforce results in significant communication challenges and much is simply “lost in translation.”
  • Processes are poorly articulated and consequently, not adhered to.
  • Damages are not processed & claimed timeously.
  • Inventory counts are conducted infrequently this making it difficult to isolate the root cause of discrepancies.
  • Administrative errors are not detected and corrected.

Inconsistent terminology and valuation methodologies

It would seem that many Middle East retailers neither use a consistent definition of shrinkage nor do they include all of the globally accepted components thereof. Furthermore, many retailers also report the various components of shrinkage in different “buckets” and therefore the cumulative value of shrinkage is not evident or reported as a whole. Consequently, it is difficult to benchmark against international figures that are available as there is no credible “like for like – apples for apples” comparison within the region.

This begs the question then; “How do Middle East Retailers benchmark shrinkage, the efficacy of their loss prevention strategy and spend on mitigation measures – and, why this is important to understand?” 

Benchmarking is the process through which a company measures its products, services, processes and practices against its competitors, or those companies recognized as leaders in its industry. Benchmarking is one of a manager’s best tools for determining whether the company is performing particular functions and activities efficiently, whether its costs are in line with those of competitors, and whether its internal activities and business processes need improvement.  Insights gained from benchmarking enables organisations to identify areas of strength as well as areas of opportunity to make improvements. Benchmarking is therefore the foundation of any strategy designed to ensure continual improvement and the creation of sustainable competitive advantage and / or cost reductions.

Although many Middle Eastern Retailers measure certain Key Performance Indicators (KPIs) in relation to shrinkage and the efforts and costs associated to the mitigation thereof, this is really only the first step towards gauging business or departmental performance. KPI measures on their own mean very little unless they are compared to some objective & relevant data.

It is therefore important for regional Loss Prevention & Risk practitioners to identify opportunities to collaborate and share relevant information whilst recognising and respecting the concerns of their principles in relation to information that is deemed to be confidential.

Industry forums, such as the annual Retail Risk – Dubai conference offer the industry an opportunity to come together and discuss emerging threats and risks and to share industry best practices. Such a forum also creates the opportunity to participate in live surveys where the participants are able to share certain key information relating to shrinkage, and the mitigation thereof, anonymously and without compromising any corporate confidentiality.

Conclusion

The real value of properly defining all the factors within a shrinkage strategy comes down to clarity and consistency. Measurement and evaluation can be demonstrably improved when standard terminology is applied to every possible shrinkage factor.

Furthermore, in order to really get to the bottom of the root causes of shrinkage, annual benchmarking is vital. Specifically, the ability to participate in region-specific, and internationally accepted surveys, in order to keep up with the best and most effective shrinkage mitigation trends. However, if a company wishes to achieve this they must be willing to accept and integrate standard, international measurement terminology.