The cost and difficulty of implementing and maintaining a quality security system can hinder a business's ability to manage theft/shrink. According to the 2000 National Retail Security Survey, U.S. retailers lost more than $13.2 billion from employee theft that year. This totals 44.5 percent of inventory shrinkage, while shoplifting accounted for 32.7 percent according to the survey. Together, they represent more than 75 percent of retail shrink.

In the global economy, supply chain disruptions are an increasingly threatening risk that can arise from many sources—and more often than not, without warning. Should a company face an unexpected break in its supply chain, it will need to have well-defined plans in place to continue doing business. Many companies lack a sufficient understanding of their supply chain vulnerability and its potential impact on operations.



"A third of investors and analysts say they now question the companies they invest in on social responsibility issues like equal opportunities and pollution.”
Alex Bollen, Associate Director of MORI, PharmaTimes, 02/04

The retail industry also faces the issue of rising workers' compensation claims and associated costs. Stockroom workers are prone to injuries related to the repetitious nature of their work. The use of improper techniques when handling stock can expose employees to physical injuries. Workers' compensation costs are rising at an astonishing rate and can significantly affect the bottom line. For example, a company with $500,000 in workers' compensation-related costs and a 5 percent profit margin needs to sell $10 million worth of products just to cover those costs. Insurance premiums and workers' compensation claims can place an unnecessary financial burden on retailers if not properly managed.

The maintenance of accurate, up-to-date information about insurance claims, policies, and exposures is inextricably linked to successful risk management. It is not sufficient to simply generate data. It must be accessible, organized, and analyzed so the information can help expedite and simplify the risk management decision making process.

A retailer's reputation is also a critical factor in its success. Companies do not only sell their product—they create an image. And they face increasing pressure to adhere to a high level of corporate social responsibility.

Brands are no longer solely assessed on the basis of financial and production performance without reference to their wider societal impact. Customers are sophisticated and have come to demand not only a good product but also socially responsible behavior from the business community. According to Marketing and Opinion Research International, the percentage of the general public that considers [social responsibility] a very important factor in making purchasing decisions doubled between 1997-2002, increasing from less than 25 percent to almost 50 percent.

When tackling the vast array of risks facing the retail industry, executives need to ask themselves the following questions:

• Have we identified and prioritized our organization-wide, strategic, business, and financial risks?
• Do we have programs in place to address the various risks we face?
• Are we considering developing new products or entering into new markets? Have we weighed all the associated risks? Do we know how to manage these risks?
• Do we have programs in place to protect our merchandise from theft and damage?
• Do we know how to investigate and measure losses when they occur?
• Have we implemented programs to ensure the employment and retention of trustworthy workers?
• Have we installed adequate surveillance equipment and security enforcement personnel?
• What are my supply chain's vulnerabilities? Do we have contingency plans in place should we have a disruption?
• Do we have adequate risk data management tools? Can we consolidate, organize, and translate existing data so that it provides a comprehensive view of risk?
• Do we have any workers' compensation related claims? Do we know how to manage claims and minimize such expenses?
• Do we know how our risk-management protocols compare to industry best practices?

"Even the best products supported by top-notch marketing can be undermined by inefficiencies in the warehousing and shipping phases of the cycle. Getting products on store shelves in a timely, streamlined manner that ensures balanced inventory for both the supplier and retailer is the foundation of a profitable bottom line."
Mobile Radio Technology, 04/01/04

Although the many risks that face the retail industry may seem overwhelming, there are several resources available to help. Risk consultation and assessment tools can help retailers foster the internal processes necessary to recognize, quantify, prioritize, and manage a multitude of risks. These can be real weapons in the war to recoup lost revenues and enhance profitability.

For example, business risk consulting can help retailers break down barriers between different business units and create a risk management framework that can identify, prioritize, and mitigate strategic risks across a retailer's enterprise.

Because of retailers' vulnerability to theft, it is vital that programs be implemented to protect merchandise. The implementation of a surveillance system and the employment of security personnel are critical. Security consulting services can help companies identify the weaknesses in their security systems and recommend ways to create optimal programs. Critical incidence planning and prevention helps organizations address issues involving company security and incidents relating to employee violence. Background screening services can help ensure that retailers are hiring trustworthy and honest employees. Forensic accountants can help identify and investigate suspected theft or fraud and, help prepare related insurance claims.

Risk-Adjusted Supply Chain Management helps companies understand vulnerabilities in their increasingly complex and interconnected supply chains and develop strategies to minimize those vulnerabilities. This service can help companies formulate tactical solutions to achieve maximum results from their supply chain by opening the lines of communication to seamlessly connect supply, planning, manufacturing, and distribution operations. After vulnerabilities have been identified, it is important to consider business continuity management services to create a plan for minimizing disruptions and returning organizations to normal operations quickly and efficiently.

There are many pre- and post- injury programs that can help reduce the cost of rising workers' compensation claims. To rein in costs, workplace accident prevention and efficient return-to-work programs are critical. In addition, retailers must implement a proactive strategy for managing claims immediately after losses are incurred.

The right information technology can help a company comprehensively manage all types of operational risk. Risk technologies provide software and services created to help businesses manage information related to insurance, claims, legal affairs, and other relevant data. The consolidation and arrangement of such information can help retailers achieve a realistic understanding of risks and associated costs and help benchmark their programs against industry peers and best practices. An information risk and security assessment can help retailers develop a risk mitigation plan and address the most serious information security risks.

In order to safeguard a company's reputation, it is essential that representatives communicate honestly and regularly with their various stakeholders, including employees, the media, regulators, vendors, shareholders, and the community. With reputation a core corporate asset, companies must ensure that they are knowledgeable and able to communicate about the risks they face. It is imperative that organizations develop and implement comprehensive programs that reach key stakeholders to maintain a favorable impression in the public eye through honest communication. Reputational risk management needs to be embedded in any organization—like other forms of risk management—because reputation can have a significant effect on a company's health and future.

If you have any questions or would like additional information, please contact us.