01 Jul Top 5 Risks in Retail
The Top Risks in Retail
Whether your business is a brick and mortar location or you operate as an online entity, retail organizations require specialized risk management to meet their needs. To stay profitable, companies need to watch their bottom line and a retail risk management solution will ensure they’re protected. While there are countless risks to assess against, history has shown which are most prevalent in each industry.
The following are the top 5 risks in retail:
Fraud and Theft
Theft is a high risk in retail that can occur in many different ways. This loss of inventory due to theft is referred to as shrinkage. Most prevalent are shoplifters, or those who may pretend to be a customer while stealing goods. According to a study comprised of 21 large retail companies with 18,994 stores, more than $136 million was recovered from shoplifters and dishonest employees in 2019, an increase of 4.9% from 2018.
This fact leads to our second cause of concern with theft, which is dishonest employees. In the same study, one out of every 50 employees was caught for theft, a startling number. Employees can take advantage of their insider knowledge to steal from their own store, whether its stealing merchandise, abusing employee discounts, or aiding theft for friends and family.
Fraud risk is a type of theft that occurs when customers make a purchase using counterfeit money or stolen credit cards. While it may seem like an honest transaction, these purchases ultimately affect your bottom line the same as theft since that money is fraudulent or often will be returned to the rightful owner.
Data Breaches and Digital Theft
As stores evolve and increase their presence on websites and mobile apps, cybercriminals are keeping pace. According to the Better Business Bureau, online purchasing was the most common type of scam in 2019 at nearly 25% of all complaints.
Through the use of key loggers, skimmers, malware, or other methods, scammers can make purchases with stolen card information. Digital theft can result from phishing scams that can convince employees to activate gift cards, transfer funds, or give personal information that allows access to data. Even physical storefronts can be targeted by hackers breaching their point-of-sale systems.
Digital theft extends beyond monetary value and can include any data collected from customers, sales, or business plans. Losing this information is not only detrimental to the success of your organization (think if business plans or sales information was sold to a competitor?) but can result in heavy fines. Customer information especially, such as emails or credit card information, must be protected by various regulations.
Most businesses depend on a steady source of income to offset regular expenses such as employee salaries, rent, cybersecurity, etc. When an event occurs that causes forced closure, many retailers see a significant hit to their bottom line. As we’ve seen with physical locations being closed due to the rapid spread of COVID-19, many retailers have filed for bankruptcy.
In addition to the unlikely event of a pandemic, forced closures can occur for a range of reasons that have varying lengths of effect. Fires, floods, bomb threats, vandalism, severe storms, etc. can all cause a store to close. Whether it’s for several hours or an extended period of time, there will be an impact.
Not only does this cover physical locations, but online stores can experience forced closure as well. Any event that makes a customer unable to select an item and make a purchase as normal is essentially the same as a forced closure. This can result from a cyber-attack, failure to renew a domain, issues with website coding, etc. It’s crucial to have a policy for how to reopen and mitigate the impact of each possible scenario.
While this risk only applies to brick-and-mortar stores, customer injury is a serious risk to retail businesses. It’s necessary that your store is up to code in all aspects to prevent issues such as customers being injured from slipping on wet floors, hit by falling objects, slipping on unsalted sidewalks, or inhaling construction dust. According to the CDC, in 2016 nonfatal injuries in the wholesale and retail industry cost businesses over $17 billion.
The retail industry is defined by direct contact with consumers and the immediate ability to rate products or services in an online setting. Any shortcomings perceived by a customer will ultimately impact the store’s reputation and revenue, whether that impact is only by the altered purchasing of the single customer or if they choose to share their opinion and affect other potential shoppers as well.
With such a high volume of consumer touchpoints and the ability of a single incident to spread rapidly via social media, reputational risk requires proactive plans in place. Typically, reacting to a situation is not enough to prevent brand damage. This can stem from any area of business. Consider incidents such as Target’s cyber breach and Chipotle’s foodborne illness. Years of progress can be undone in the span of a few days and require years more to repair the damage.
Retail Risk Management Software
To protect your retail business, utilize free RiskWatch software to address all risks and help prevent potential losses. Our software will help evaluate the efficacy of current policies and procedures in place to mitigate identified risks, as well as help identify new risks and gaps. Utilize our pre-built content libraries to ensure compliance with any state or federal regulations. Currently using a manual system? You’ll see an average increase in efficiency by 74% thanks to automated data collection, communication, data analysis, and reporting.