Chapter 13: Assets and Risks

Question 1

**Types of Risks in a Retail Organization

Answer 1

Operational risks
- risks relating to internal processes, systems and people of the org. Eg POS system could fail and result in a loss of sales. External events such as power outages pose an operational risk.

Market risks
- New competitors and consumers’ needs and preferences change over time therefore retailers need to monitor their market constantly to be able to adjust their strategies in time. Retailers must position customer at the centre of the organization and differentiate themselves from competition by offering unique merchandise.

Financial Risks
- extending credit carries the risk of customers not paying back. Internet rates increasing on loans taken out by the business. Retailers can prepare for economic slowdown by not overextending credit, improving their cash flow through debt negotiation, insurance against credit losses.

Compliance Risks
- reliefs are subject to legislative acts such as CPA. Competition Act and BCEE act. Retailers must be Clear on their roles in terms of these acts, Because contravening any of these acts lead to expensive legal procedures. Other acts are not governed by the law are protecting the environment, social responsibility and health and safety procedures.

Environmental Risks
Natural disasters pose Environmental risks for retailers, and there are often unable to protect opened pay for the damages and losses associated with events such as floods, fires and earthquakes.

Natural disasters such as hurricanes etc cannot be insured.

Question 2

**The risk management process

Identify 
Evaluate 
Select 
Implement 
Monitor effectiveness

Answer 2

The risk management process is a system of identifying, evaluating, selecting, implementing and monitoring decisions to reduce effects of risks on a retail organisation.

Step 1: identifying risks
- specific risks for specific retailers. Eg not all stores will have the same risk for flooding

Step 2: evaluating techniques available to manage risk.
- some types of risks are insurable and insurance companies will assist in determining the risk exposure of the retailer and offer customizable packages.

Step 3: Selecting risk management technique
- considering the cost of the technique compared to the likelihood that the business will lose that asset.

Step 4: Implementing risk management technique
- contacting insurance broker or purchasing risk reducing equipment. Eg Shoplifting CCTV

Step 5: Monitoring the effectiveness of risk management techniques
- monitor and revise techniques

Question 3

Shrinkage

Answer 3

Shrinkage defined as the reduction of inventorying value due to employee or consumer customer theft, by merchandise being damaged or spoiled and poor record keeping of inventory.

Question 4

Types of shrinkage

Answer 4

Theft by customers or employees

Mistakes by employees at POS.

Supplier may short deliver on an item and the retailer does not pick it up.

Miscounting during physical stock takes

Organized theft - creating fake barcodes

Question 5

Effect of loss prevention tactics on customer relationship

Answer 5

A recent study showed that technological surveillance in a retailer gives them the impression of distrust and reduces the ability of retailers to build customer relationships.

Question 6

Shoplifting

Answer 6

Removing the price tags of expensive items and replacing them with cheaper ones
Hiding merchandise in bags or clothing

False wrapping/ hiding expensive merchandise in cheap merchandise wrapping

Wearing merchandise and pretending it’s their own

Grabbing a handful of merchandise close to the door and running away

Question 7

Measures for detecting and preventing shoplifting

Answer 7

Implementing merchandise policies
- locking away expensive merchandise

Designing the store better

• payment points at entry due to high number of staff
• expensive items at back of store
• avoid creating blind spots in store

Increasing security
- electronic article surveillance - placing tags on merchandise that are only deactivated once it’s been paid for. CCTV - store must inform customers that they are being recorded.

Prosecuting thieves
- legal requirements -
approach shoplifter discretely and tell them to accompany their security personnel at the back office, so as not to scare off or alarm other customers. Avoid confronting in front of other customers. If they ask why then retailer must say ask them a few questions. Once in office they can call police. The merchandise must be on suspects person when police arrive.