How To Improve Retail Loss Prevention With Leading Indicators?

Running a business is all about profit. Part of making the highest profit is remembering that the little stuff adds up. In other words, finding ways to limit human error, avoid running losses and plan for the future.

According to the 2020 National Retail Security Survey, 1.62% of potential profits in retail is lost annually to ‘inventory shrinkage’ - costing up to $61.7 billion! Retail loss prevention is all about finding methods to avoid losing this profit.

The top four causes of profit loss in retail are: 

  • Internal Theft 
  • Shoplifting
  • Admin/paperwork errors
  • Return fraud

Loss prevention strategies deal with these behaviours. They also consider consumer and industry trends that affect a company’s performance. This allows retailers to predict future outcomes. Increasingly, prevention strategies have begun to include technology.


A Crystal Ball? No, Just Leading Indicators

You don’t need to be a fortune teller to understand leading indicators. But, they do serve a similar purpose in allowing retailers to predict the future. 

Leading indicators are interest areas that one can keep an eye on to forecast changes in systems, trends, information, etc. 

Unlike lagging indicators, which focus on past patterns and behaviours, leading indicators focus on current performance to signal the future.

So, the four causes of shrinkage above are actually lagging indicators about past performance. As the name suggests, leading indicators include observations that may lead to a certain action. For example, observations of suspicious behaviour before a shoplifting incident. 

By lowering the threshold of reporting for these types of observations, retailers can better respond to potential risks. 


Loss Prevention Using Leading Indicators

It’s very simple to draw a theoretical line between reporting observations and improving performance and profit. But how can a company go about loss prevention practically? 

Internally, it can target the issues already causing losses in profits (e.g. shoplifting). However, these are lagging indicators and should not be the focus of a modern loss prevention plan. Looking at lagging indicators could be compared to looking at the rear-view mirror while driving. And would you like to trust that view while going forwards?

Rather than counting how many times shoplifting has occurred, loss prevention teams should identify the signs or causes that enable this action. Once identified, these parameters could then be used as indicators for future shoplifting risks. Understanding the behaviour that comes before shoplifting, theft, errors or return fraud, makes it easier to identify when these behaviours could happen.


Making Prevention Accessible & Convenient 

Reporting incidents is often awkward, lengthy, and tedious. And as a result, nobody wants to do it. This further exacerbates profit losses as the causes go unaddressed. To mitigate this, lowering the threshold of reporting can help retailers collect more leading indicators, spot trends and respond to risks proactively. But how can one achieve this?

Mobile reporting and inspection platforms are designed to do just that and more. They make it easier to manage the work done in identifying and reporting leading indicators as staff can file reports swiftly, respond quicker to follow-up actions, guarantee a continuous feedback loop and monitor the overall performance from the built-in statistics.

The best platforms also offer integrations to third parties such as business intelligence tools (to visualise and compare the leading indicators to other datasets), HR systems (to automate the creation of roles, teams and user rights) and insurance companies (to reduce manual labor and automate processes such as claims) to name a few.


Final thoughts

There are many ways to approach loss prevention. But, identifying leading indicators is often overlooked, or at least not fully utilised. Mobile friendly incident reporting platforms lower the threshold of reporting, making it easy to capture leading indicators and trends that can be led into concrete follow-up actions that improve your retail business in the long run.

Look at the facts now and use them to plan for the future with retail incident reporting software. This will help you to adjust to risks better and prevent losses.


If you're looking for an incident reporting platform that is easy-to-use, boosts two-way communication, has customisable workflows, vast integration possibilities and more, have a look at our Falcony | Observe product and contact us for more information.

We are also offering a 30-day trial of the Falcony | Platform so you can take your time testing it out for FREE. If you are interested, click the button below and fill in the required information to get started:

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