Understanding Shrinkage and Loss on Newspapers & Magazines in the UK Grocery Sector

Transcription

1 Understanding Shrinkage and Loss on Newspapers & Magazines in the UK Grocery Sector August 2015

2 Disclaimer This report has been compiled by the ECR Europe Shrinkage and On-shelf Availability Group with the support of the University of Leicester. The document is intended for general information only and is based upon data provided the participating retail companies. Companies or individuals following any actions described herein do so entirely at their own risk and are advised to take professional advice regarding their specific needs and requirements prior to taking any actions resulting from anything contained in this report. Companies are responsible for assuring themselves that they comply with all relevant laws and regulations including those relating to intellectual property rights, data protection and competition laws or regulations. ECR Europe 2015, all rights reserved. Understanding Shrinkage And Loss On Newspapers And Magazines in the UK Grocery Sector ECR Europe 9 avenue des Gaulois 1040 Brussels Belgium ECR Europe is a voluntary and collaborative retailer-manufacturer platform with a mission to fulfil consumer wishes better, faster and at less cost. It is a non-profit organisations which aims to help retailers and manufacturers in the consumer goods industry to drive supply chain efficiencies and deliver business growth and consumer value.

3 Top Line Findings The aim of the study was to develop a more detailed understanding of the nature and extent of the problem of loss in the N&M category in the UK Grocery sector The data is derived from 5 of the UK s largest Grocers Asda, Marks & Spencer, Sainsbury s, Tesco and Waitrose, which have a combined turnover of over 97 billion, accounting for nearly 72 per cent of the UK grocery market. It is estimated that the total size of the print N&M market in 2014 in the UK was billion (Newspapers billion and Magazines billion). UK Grocery sector accounts for 46% of the overall market although it sells the majority of Magazines in the UK (53%) and a significant proportion of all newspapers (43%). Average rate of shrinkage for N&M category is 3.45%; 356% higher than overall shrinkage rate for sample companies. N&M category makes up 0.85% of overall sales but accounts for 3.86% of the overall shrinkage costs of Grocers. Overall, the projected shrinkage losses for the UK Grocery sector for N&M is estimated to be 52 million a year. If the N&M category recorded a rate of shrinkage on a par with the other products stocked by retailers, it would bring the overall average rate of shrinkage down by 7%. Estimated that 44% of shrinkage problem could be due to unresolved deliveries and returns. Additional staffing costs to manage the category amounted to a further 3.17% of sales. Carriage charges added a further 1.03% of sales to the cost of this category. Taken together shrinkage and associated additional costs amounted to an estimated 7.65% of sales (ignoring additional charges associated with third party companies contracted to manage the problem). Total loss and associated costs of the N&M category estimated to be million for UK Grocers. Nearly one third of all stock delivered is returned (30.3%) million, with Newspapers calculated at 21.7% and Magazines 40%. No variance in rates of shrinkage found between main wholesalers. Significant variance in rates of shrinkage associated with some depots of both wholesalers. Report concludes that these very high rates of loss and costs associated with managing this category shines a powerful light on both the business case for continuing to retail this type of product and the rather byzantine operational processes associated with its management. As things stand, the approach looks and feels process heavy and what is now required is a process firmly rooted in the 21 st Century agile, truly collaborative and making the most of new developments in retail technology. 1

4 Introduction The problem of shrinkage, the rather euphemistic term used by the industry to describe the losses incurred as part of the overall business of retailing, continue to account for a significant proportion of business turnover. Data extrapolated from the 2011 Global Retail Theft Barometer and Planet Retail suggest that shrinkage cost the UK Grocery sector 1.12% of retail turnover, or billion a year (excluding the losses associated with wastage and other factors not typically included in the shrinkage definition used by the major UK Grocers) 1. Within this large number there is of course considerable variance in not only the types of products that generate this loss, but also the underlying causes as well. Work by the ECR Europe Shrinkage and On-shelf Availability Group (OSA) has categorised retail losses into two broad areas: malicious and non malicious, the former focused upon losses generated typically by internal and external thieves stealing cash and product, while the latter brings together the causes of loss due to errors in the processes and procedures employed by retailers and their suppliers 2. Case studies undertaken by the ECR Shrinkage and OSA Group have indicated that overall, non-malicious forms of loss account for between 70% and 80% of all grocery losses while malicious causes account for around about 20-30% 3. These case studies show the considerable value that can be attained through focussing particularly on the non-malicious losses experienced by the Grocery industry the size of the prize is not only considerable, but typically the required interventions to achieve these savings are easier and cheaper to design, develop and deliver than those focused upon more malicious forms of loss. The Newspaper and Magazine (N&M) sector is not immune from shrinkage, both in terms of malicious and non-malicious forms of loss the products can be attractive to thieves but they can also generate losses through the business processes required to manage them it is a complex and fast moving category prone to error. While anecdotal evidence from the Grocery industry frequently flags this up as an area of concern, there are no studies to date that shine any light on the scale of the problem, nor what the main drivers of loss might be. Aims and Objectives The aim of this study was relatively straightforward develop a more detailed understanding of the nature and extent of the problem of loss in the N&M category in the UK Grocery sector try and identify the key drivers of loss and better understand how might they vary in terms of type of supplier, product and the processes utilised by retailers Centre for Retail Research (2011) The Global Retail Theft Barometer 2011, Centre for Retail Research: Nottingham; Planet Retail, See Beck, A. with Peacock, C. (2009) New Loss Prevention: Redefining Shrinkage Management, Palgrave: Basingstoke. Ibid. 2

5 Methodology The data for this report was derived from 5 of the UK s largest Grocers Asda, Marks & Spencer, Sainsbury s, Tesco and Waitrose, which have a combined turnover of over 97 billion, accounting for nearly 72 per cent of the UK grocery market. Each retailer was asked to provide the following data for the last available 12 months: Total sales at retail prices for N&M 4. Percentage of total retail sales and value of losses attributed to N&M. The name of the Distribution House(s) supplying each store. The Unsold Rate the difference between recorded sales and deliveries. The Return Rate the percentage of product returned to wholesalers. The total value of returns claims. The total value of rejected returns claims. The percentage of all claims that are rejected. The value of all claims for errors in receiving from wholesalers. The total value of rejected returns claims for errors in receiving from wholesalers. The percentage of rejected returns claims for errors in receiving from wholesalers. The carriage charges associated with the N&M category The cost of budgeted labour for the N&M category. Credits paid to retailers for inserting supplements. Not all were able to provide this data and some relied upon third party companies to provide this information (the author is very grateful for the time and effort provided by staff at RASCAL who provided a significant amount of data for some of the participating companies). Combining data associated with the N&M category from 5 large retailers was not easy different companies used different formats and definitions and matching store profiles between retailers and third party providers proved challenging and time consuming. Moreover, it was also difficult to find published and verifiable data on the size of the N&M industry as it related specifically to the UK Grocery sector. The researcher contacted a number of industry bodies, research companies and the N&M wholesalers 5 to solicit views on the scale of the overall N&M market, what proportion Newspapers and Magazines made of this market and what proportion of the market was held by the UK Grocery sector. While there was a degree of variance amongst those offering estimates of the size and make up of the market, most estimates were within a relatively narrow range. 4 5 Sales data from individual companies was only shared with the researcher and communicated to contributing retailers in aggregate form. The researcher is grateful to: Wessenden Marketing & Brandlab Research; Smiths; Menzies; the Professional Publishers Association; and the New Media Association for providing estimates of the size of the market. 3

6 Overall, it was concluded that the total size of the print N&M market in 2014 in the UK was billion (Newspapers billion and Magazines billion). From this it was concluded that the size of the N&M business accounted for by the UK Grocery Market was as follows: Table 1 Breakdown and Size of UK Grocery Market Share of N&M Category Type Total Market Grocery Market Share Grocery Market Value Newspapers 2,081,000,000 43% 884,425,000 Magazines 1,190,000,000 53% 624,750,000 Total 3,271,000,000 46% 1,509,175,000 As can be seen, it is thought that the UK Grocery sector accounts for 46% of the overall market although it sells the majority of Magazines in the UK (53%) and a significant proportion of all newspapers (43%). It was estimated that the companies taking part in this study accounted for just over 50% of the Grocery market share (55%), amounting to sales of million. The findings below use the data provided by the participating retailers to estimate the picture for the UK Grocery sector as a whole the data is weighted to take account of the varying size of sales amongst the participating companies. 4

7 Findings Sales and Shrinkage The most obvious way of measuring losses associated with any category of product is to look at the rate of shrinkage recorded by retailers. There is no universally agreed definition for what shrinkage actually means; typically it is used to describe the unexplained losses within the retail environment, calculated using audit and sales data (shrinkage is usually seen as the difference between what stock a company expects to have after sales have been taken into account and what is actually present in the organisation). All of the retailers taking part in this study were able to provide this data and this is summarised in Table 2 along with some comparator data to put the N&M shrinkage number into context. Table 2 Rate of N&M Shrinkage Compared with a Basket of Comparators Comparable Shrinkage Rates Rate Difference Average Shrinkage Rate for N&M 3.45% Average Overall Shrinkage Rate for Sample Companies 0.76% 356% Global Retail Theft Barometer 2011 (Grocery only) 1.29% 167% The British Retail Crime Survey, % 185% Overall Average 1.09% 218% As can be seen, the recorded rate of shrinkage for the N&M category (3.45%) is considerably higher than the overall average rate of shrinkage for the companies taking part in this study some 356% higher. Even when estimates of shrinkage are used from two of the most well known surveys of shrinkage covering the UK, the recorded rate for N&M is still considerably higher the rate of shrinkage for Grocery captured by the Global Retail Theft Barometer in was 1.29% and the 2012 British Retail Consortium overall rate of shrinkage was 1.21%. If an average is taken of the three-benchmark shrinkage numbers, which suggests that overall shrinkage might be 1.09% of sales, the N&M figure is still 218% higher. It seems clear that the N&M category has a profoundly high rate of shrinkage. To put this in even sharper contrast, the N&M category makes up 0.85% of overall sales but accounts for 3.86% of the overall shrinkage costs of Grocers. Overall, the projected shrinkage losses for the UK Grocery sector for N&M is estimated to be 52 million a year. Finally, if the N&M category recorded a rate of shrinkage on a par with the other products stocked by retailers, it would bring the overall average rate of shrinkage down by 7%. 6 The 2011 survey is considered to be the most reliable of the recent surveys undertaken using the Global Retail Theft Barometer name. 5

8 The Broader Landscape of Loss and Cost While shrinkage is typically used to capture the losses associated with products merchandised by retailers, in no way does this measure necessarily cover all the areas of loss that might be associated with a particular category some products may generate loss through known and recordable causes, such as fresh food going out of date and having to be thrown away or reduced in price to minimise the loss. In addition, some products can be damaged leading to them being unfit for sale or again, triggering an unexpected reduction in price and subsequent profit. Equally, products may become unintentionally out of stock, which can lead to lost sales or they can attract additional handing charges, which again can impact upon overall profitability. The N&M category is perhaps unique in potentially generating a range of additional losses and costs not typically associated with many of the other categories of products typically stocked by retailers, and which are driven by a combination of product handling complexity and the process requirements of the wholesalers and publishers providing the stock. This research focussed upon a number of these additional factors with a view to trying to understand what the potential additional costs to retailers might be. For some of this analysis data came from just two of the retailers taking part in this research, both of whom used a company called RASCAL, which offers a service to manage some of the process complexities of the N&M category. The first area that was considered relates to losses generated by unresolved disputes concerning deliveries, which is defined as the potential value the wholesaler disputes with a retailer and is not prepared to credit. The second area is disputes relating to returns: the potential value of returned stock which is disputed by the wholesaler and no payment for this stock has been made to the retailer. It is important to note that this data is liable to error as it is based upon RASCAL s knowledge of whether the payments have or have not been made by wholesalers it could be that payments have been made but RASCAL have not been made aware of this. In this respect, the data presented below represents the maximum exposure to these particular problems. However, given that these elements reside within the overall shrinkage figure, it does not affect the total amount recorded as lost by a retailer but may simply affect how those losses are allocated to specific causes. The next area considered by this study was the costs associated with the carriage or delivery costs charged by the wholesalers. This figure is slightly reduced by a credit payment covering staff time for inserting supplements in the store. The final area is staff costs to cover managing this category, in particular the relatively complex delivery and returns processes. Typically wholesalers and publishers set stringent requirements for when and how unsold stock must be returned by the retailer failure to do so can lead to refunds being rejected. Indeed, the complexity and potentially ruinous consequences of not managing this process 6

9 accurately has led to organisations such as RASCAL developing to offer specialist support to retailers to manage this category and liaise directly with wholesalers. Detailed in Table 3 below is a breakdown of the various losses and costs associated with the News and Magazine category. Each of the five retailers taking part in this study were able to provide an overall shrinkage figure for the N&M category, the carriage costs charged by the two main wholesalers (minus the credit for handling supplements, which only some could provide) and an estimation of the total staff hours associated with managing this category. This data was then used to estimate the costs for the total UK Grocery sector calculating the costs and losses as both a percentage of total N&M sales and total value. Table 3 Summary of Losses and Costs Associate with the N&M Category for the UK Grocery Sector Components of N&M Costs Per cent Value Shrinkage Unresolved Deliveries ,839,812 Unresolved Returns ,008,087 Other Shrinkage ,176,854 Sub Total ,024,753 Carriage Charges (minus supplement credit) ,518,991 Staffing Costs ,848,186 Total ,391,931 As can be seen, overall shrinkage accounts for the largest proportion of loss 3.45%, with estimates suggesting that unresolved deliveries and returns could amount to 44% of this type of loss, with other forms of shrinkage, such as theft and damage making up the remainder of the shrinkage losses. The second highest area of cost was perhaps not unexpected staffing which it is estimated accounts for 3.17% of N&M sales, amounting to nearly 48 million a year. The third and final area of cost that has been identified as part of this research was carriage costs the charges made by the wholesalers to deliver and return product minus any credits for the insertion of supplements by the retailers. This amounts to nearly 16 million a year for the UK Grocery sector, or 1.03% of N&M sales. Taken together, these costs and losses amount to a staggering million a year, equivalent to 7.65% of the N&M Grocery market. In many respects this is an underestimate of the total costs associated with this category a charge incurred by some companies that employ third party companies, such as RASCAL, has not been included due to issues of confidentiality. 7

10 It was possible to provide a limited breakdown of the staffing costs associated with handling N&M although no two retailers used the same categories of activities. Overall, the delivery and returns processes accounted for approximately 56% of staff time, with deliveries absorbing the most time. It is also worth noting that 30.3% of all stock delivered to retailers appears to be returned to the wholesalers, amounting to million for the UK Grocery sector as a whole. The returns rate varied considerably between Newspapers and Magazines: the calculated rate for Newspapers was 21.7% while for Magazines it was 40%. This seems an extraordinary amount of stock to be returning and clearly raises questions about the accuracy of demand forecasting by the publishers and wholesalers, and undoubtedly explains some of the relatively high costs associated with managing this category. It also raises questions about the accuracy of sales and circulation figures regularly published by the industry given the relatively high rate of unresolved returns claims that would appear to be included in these figures. Shrinkage and Distribution It was also possible to review the shrinkage data and compare the rates between the two main wholesalers providing N&M to the Grocery sector (Table 4). Table 4 Rates of Shrinkage by Wholesaler Wholesaler Shrinkage (%) Menzies 3.65 Smiths 3.41 Total As can be seen, while there was an apparent difference in rates of shrinkage between Menzies (3.65%) and Smiths (3.41%), further analysis did not indicate that the difference was statistically significant. There was, therefore no difference in the rates of shrinkage between the two main retailers. There were, however, more significant differences when analysis was performed on the rate of shrinkage for stores serviced by different depots, both for magazines (Table 5) and newspapers (Table 6) The overall rate of shrinkage is lower in this table compared with earlier tables because the data used to calculate this statistic used a different total number of stores. Only depots that supplied 10 or mores stores were included in the analysis. 8

11 Table 5 Rates of Shrinkage by Magazine Depot Menzies Shrinkage (%) Smiths Shrinkage (%) Leeds 11.0 Bhamwood 7.7 SEL 8.5 Wednesbury 6.5 Cambuslang 4.1 Slough 4.3 Sheffield 3.7 Stockport 3.6 Dundee 3.4 Crawley 3.6 Linwood 3.4 Borehamwood 3.6 York 3.2 Newport 3.2 Belfast 3.1 Newcastle 3.1 Swansea 3.0 Birmingham 3.0 Newbridge 3.0 Peterborough 3.0 Average In terms of magazines and the stores serviced by Menzies, the depot at Leeds had a rate of shrinkage nearly 3 times the average followed by SEL at more than twice the average. For the stores serviced by Smiths, the two depots associated with the highest rates of shrinkage were Borehamwood and Wednesbury both approximately double the average. Table 6 Rates of Shrinkage by Newspaper Depot Menzies Shrinkage (%) Smiths Shrinkage (%) SEL 5.4 Hornsey 6.0 Leeds 5.3 Hammersmith 5.2 Grays 4.3 Borehamwood 4.3 Sheffield 4.2 Stockport 4.1 Cambuslang 4.1 Croydon 4.0 Bow 3.8 Crawley 3.9 Carlisle 3.6 Newport 3.7 Maidstone 3.6 Birmingham 3.6 Linwood 3.4 Peterborough 3.5 Ipswich 3.4 Plymouth 3.3 Average With regards to newspapers depots, there were fewer locations with significantly higher rates of shrinkage for Menzies, the SEL and Leeds depots once again featured at the top of the list, while for Smiths the Hornsey and Hammersmith 9

12 locations were found to generate the highest rates of shrinkage in the stores serviced by these depots. At this stage it is not possible to conclude why certain locations have much higher rates of loss than others further research would be required to understand whether different processes or local conditions were causing this to happen. Conclusions This short review of the N&M category in UK Grocery has shone a light on an area experiencing high levels of loss and associated costs. In terms of shrinkage alone, it is a category generating significantly high rates of loss typically 356% higher than the average rate of shrinkage for all the other product categories stocked by UK Grocers. This relatively high rate of loss would seem to be due to a uniquely complex and demanding process, partly caused by the nature of the product highly time sensitive but also by industry requirements that appear at first sight to be overly bureaucratic and rather outmoded in 21 st Century retailing. Unpicking some of the drivers of this approach would require further research, but a shrinkage rate of 3.45% of sales would undermine the financial viability of many other categories of product. This is further compounded by the additional costs incurred by retailers stocking N&M, some of which have been captured by this study. The first is the carriage charges imposed by wholesalers to manage the flow of products to and from the many thousands of outlets where they are sold. Again, given the nature of the product, it is perhaps not surprising that some form of charge has to be made to cover the complexity of the distribution network required, but it erodes retail margins by a further 1.03% of sales, adding up to more than 15 million a year for UK Grocers. The second main area of cost associated with this category is the additional staffing requirements to manage the complexity of the process, especially the delivery and returns components, which if not done correctly can and does generate significant losses. It was estimated that staffing costs further erode retailer margin by 3.17% adding up to nearly 48 million a year for UK grocers. Arguably, some of this type of cost is incurred across all forms of products stocked by retailers they need to employ staff to restock shelves, take payments from customers and count stock etc. But what is really quite unique about the N&M category is the complexity of the process, especially relating to deliveries and returns which if not done correctly will lead to significant penalties imposed by the industry (newspapers must be returned by a very specific date otherwise credits will be lost). There are no other categories within retailing which impose such draconian demands upon the retailer and is something which is further compounded by the very high rate of returns it is estimated that nearly one-third of all stock delivered to stores is returned and for the Magazine category it is even higher at 40%. When these three areas of cost and loss are brought together, it is estimated they amount to 7.65% of retail sales or just over 115 million for UK Grocers. It is also 10

13 worth noting that this excludes the costs associated with employing third party companies or software systems employed by some retailers to help manage the complex delivery, returns and crediting process imposed by the industry. Due to issues of confidentiality, it has not been possible to include precise estimates of this cost in this report although those retailers using them will be able to calculate their own total cost/loss figure for the N&M category one participant suggested that for their organisation it would push the overall cost and loss figure above 8%. Finally, further analysis looking at how rates of shrinkage varied between wholesalers found no difference between the two main providers but significant differences were found amongst different depots delivering newspapers and magazines. It may be a case of looking more closely at those depots that seem to generate very high and very low rates of store shrinkage to better understand how processes might be improved in the former based upon best practice found in the latter. Undoubtedly the N&M is a uniquely complex category few products have as short a shelf life as a newspaper but this analysis would suggest that the very high rates of loss and costs associated with managing it shines a powerful light on both the business case for continuing to retail this type of product and the rather byzantine operational processes associated with its management. As things stand, the approach looks and feels rather antiquated and what is now required is a process firmly rooted in the 21 st Century agile, truly collaborative and making the most of new developments in technology. 11