Data analytics and old-fashioned sleuthing can reduce losses from shoplifting, vendor fraud, supply-chain theft and the like, advises Tiger Group’s William J. ‘Bill’ Mayer
NEW YORK, Aug. 14, 2023 /PRNewswire/ — Appraisal firms should play a bigger role in retailers’ fight against the growing problem of shrink, advises a veteran Tiger Group executive.
In an Aug. 1 opinion piece for ABL Advisor (ABL Sector Must Stay Vigilant Amid ‘Growth of Shrink’), Executive Managing Director William J. “Bill” Mayer notes that shoplifting, organized retail crime, employee theft and other forms of shrink are eating into the profits of American retailers.
“Target, for one, said its profits could take a $500 million hit from shrink this year alone,” he writes. “Notably, in a recent CNBC appearance, the National Retail Federation’s CEO struck a Churchillian tone, calling for a war against shrink ‘on the docks, on the ships, and on the railcars.'”
In addition to shoplifting and employee theft, sources of shrink can include everything from innocent cashier mistakes, to misplaced merchandise, accidental product damage and vendor fraud. “Just last month, an Amazon warehouse manager was sentenced for stealing more than $9.4 million from the company, in concert with seven other people,” Mayer observes. “The U.S. Justice Department pointed to a ‘brazen fraud scheme involving fake vendors and fictitious invoices.'”
But appraisers with the right analytics and field examination capabilities can ferret out disparities between the inventory subledger and the physical count of goods, Mayer asserts. The ABL executive, who is active in Tiger’s valuation, disposition and finance practices, has generated billions of dollars in growth over the course of his 30-year career.
In the column, Mayer points to areas of inquiry that can help uncover shrink.
Many smaller and mid-sized retail chains, he observes, are hamstrung by a lack of transparency into their inventory, running physical counts on an annual basis only. “They are often unable to compare the number of in-possession sweaters, say, with the totals on the books,” the executive explains. “This can lead to large book-to-physical (aka shrink) adjustments at year end.”
Appraisers need to determine whether the smaller or midsized retailer has fallen behind on its regularly scheduled counts of physical goods within individual stores and distribution centers. “How frequently does the company conduct chainwide physical counts of inventory?” Mayer asks. “How accurate are the retailer’s assessments of shrink likely to be given its overall operational efficiency (or lack thereof) and approach to inventory data and systems?”
Increasingly, thieves are targeting warehouses and distribution centers, along with the trucks and trains that transport goods. “Appraisal firms need to understand what’s happening with shrink throughout the borrower’s supply chain,” Mayer cautions, “starting when the goods have been received from the manufacturer.”
- Does the retailer own and tightly control its own distribution centers, or does it rely on shared spaces with multiple users, high turnover and generally lax oversight?
- Are the retailer’s DCs running at full staff, or could overworked crews be helping themselves to the goods in “compensation” for their situation?
- What can the retailer’s inventory data reveal about shrink trends at the DC and beyond?
On this last question, the data revolution is giving appraisal firms new weapons in the fight against shrink. “With the right personnel and analytics in place, they can slice-and-dice inventory data down to the SKU level, creating more opportunities to compare received goods against actual sales,” Mayer explains. “When ‘red flag’ disparities emerge, a proactive investigation can stem the losses.”
Appraisal firms that take advantage of newer, more data-driven approaches also can reveal fundamental flaws in a retailer’s existing approach to inventory.
“It is not uncommon for mishandling of goods—such as double-counting the same shipment, either due to accidental rescanning or incorrect, manual data entry in a spreadsheet—to be behind shrink,” Mayer writes. “Implementing the right technology at these levels can help pinpoint run-of-the-mill data errors more quickly and further bridge this gap.”
But data strategies should be coupled with regular physical checks of inventory. “Field examinations continue to provide lenders with a powerful tool to both monitor collateral value and catch shrink before it becomes unmanageable.”
Shrink forces retailers to spend millions of dollars on new personnel, monitoring and surveillance equipment, and employing too many lockboxes can drive frustrated customers right into the arms of Amazon.
“With the ‘growth of shrink’ looming larger,” Mayer concludes, “it’s time to ramp up the detective work and help borrowers and lenders regain control.”
The full article is available at
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SOURCE Tiger Group