Inherent Risk in the Retail Industry: What You Should Know

The retail industry is undergoing an incredible transformation as emerging technologies, omnichannel shopping, as well as digital and social media, compel organizations to figure out how to operate more efficiently and better accommodate customers.

Leaders of companies in the retail industry understand the importance of the digital forces at work in the sector and are looking more closely at the inherent risks these digital forces present.

Every business comes with inherent risks, and running an e-commerce website or retail store isn’t any different. As more consumers shop online, e-commerce crimes are increasing and retailers are becoming more vulnerable.

Consequently, as organizations in the retail industry develop innovative ways to meet consumer demand, they also have to find better approaches for managing this inherent risk.

The following are just some of the inherent risks that affect companies in the retail industry:

Cybercrimes

Digital cybercriminals can target companies in the retail industry in several ways. For example, a hacker could launch a sophisticated phishing scam and convince your unwitting customers and/or employees to give up personal information, such as their credit card data.

A distributed denial of service attack can take down your company’s servers, preventing customers from purchasing products. Cyber thieves can also target brick-and-mortar retailers by hacking into their point-of-sale (POS) systems. Hackers can also infect a retailer’s systems with ransomware and malware.

Companies in the retail industry can manage these inherent risks by replacing legacy POS equipment and having a cybersecurity specialist audit their systems and software.
Reputation Risk Factors

Organizations in the retail industry are impacted by direct contact with consumers. The fact is that with the growth of social media, companies no longer control their own messaging.

Just one negative Facebook post, blog entry, tweet, or YouTube video can spell disaster for your company. Considering a large number of customer touchpoints, the chances that your brand’s reputation—and your revenue—will be negatively affected is pretty high.

To ensure your customers are happy, you should conduct consumer satisfaction surveys periodically to identify customer needs and expectations. You can also implement a customer relationship management system to deal with any complaints and reply to any questions. It’s also important to establish a policy to deal with social media so you can quickly respond to customers who leave negative comments about your company or products.

Not complying with laws and industry regulations

Companies that don’t adhere to government regulations as well as maintain the validity of their agreements and licenses, such as lease agreements, business licenses, advertising licenses, etc., may go out of business, suffer financial losses, or pay penalties. All of which could ruin a company’s reputation.

As such, you should ensure that your company:

• Adopts procedures to identify and comply with any changes in government and/or industry regulations.
• Implement processes to follow up on the terms of agreements and licenses.
• Establishes a time period to begin the action that’s necessary to renew agreements and licenses before they expire.

Supply chain risks

Over the last decade, supply chain risk management has emerged as a challenge for companies in the retail industry. Customers want to receive their products whenever and wherever they want them. So to meet customer demand and remain competitive, you have to transform your supply chain or risk losing out to your rivals.

Consequently, it’s imperative that you implement digitally enabled supply networks to enable cross-channel shopping with multiple delivery options and an easy return process. In addition, you have to assure customers that you have their items in stock and can deliver them when you say you will, as well as offer them a way to communicate with you in real-time.

Establishing a Digital Risk Framework

All your sensitive corporate data, automation, connectivity—all things digital—are inherently at risk because they are entry points for hackers. And the potential damage from just one cybersecurity incident is amplified because your digital systems are so embedded in your daily operations.

Companies in the retail industry that properly manage inherent risks become more competitive. Senior management should look to risk management to help them make better decisions about the company’s investments and its sustainability.

Digital risk management comprises numerous layers of risk defense, each linked via specific roles and responsibilities. However, it’s senior management who is responsible for setting the vision and assigning and coordinating these lines of defense. This helps them identify and correct redundancies in their organization’s risk management structure and prioritize how to control risks.

Generally, your business units should be the first line of defense in terms of dealing with digital inherent risk. They should work with your information technology department to incorporate risk-informed decision-making into your company’s daily operations.

In addition, they should figure out the level of risk they’re willing to accept, mitigate risks as appropriate, and escalate problems when the risks are more than the company is able to tolerate.

The second line of defense is the risk management function that establishes governance and oversight procedures, sets risk baselines, and implements risk management tools and processes.

The audit function is the third line of defense. Your internal auditors verify how effective your digital risk management process is and assures leadership and the board of directors that this process is working properly.

Additionally, your internal auditors let your company’s executives know if they have to make any improvements in the risk management process that can help the company to achieve its objectives.

Developing a digital risk management framework also helps your auditors evaluate the established controls you have in place to adequately address such risks.

Typically, an organization maintains multiple digital assets across a number of digital channels. The organization owns and controls some of these digital channels, including mobile apps, e-commerce websites, and IT infrastructure. Others are outside of the company’s direct control, such as what people say about the organization or its digital assets in the digital space.

Implementing a digital risk management framework can help companies in the retail industry expose potential risks. Doing this allows you to establish controls and repeatable processes as well as streamline your responses to these risks. A digital risk framework enables management to begin evaluating how well your company can sense and respond to digital risk.

This ongoing “sense and respond” approach to digital risk management crosses silos and affects all stakeholders. The building blocks for this method make up a comprehensive lifecycle process to help you do as much as you can to protect against these inherent risks—with the greatest competitive benefits.

There are a number of actions executives in companies in the retail industry can take to manage risk, including:

• Frame and benchmark the current risk management strategy. Then take an inventory of the supporting processes, policies, controls, and metrics, particularly as they apply to your digital assets and channels.
• Establish a digital governance structure as well as risk mitigation and response plans. Develop policies and procedures for the new digital age and implement risk management processes to support those policies and procedures.
• Launch an integrated risk management program, including assurance programs, frameworks, and activities, to business units and other relevant areas, such as your internal audit department and IT.
• Put business and digital risk management strategies in place. Test your risk processes and internal controls. For example, conduct escalation and response scenario testing. Also, implement reporting and performance management.

With a comprehensive risk framework, your company leaders can better manage risk. And by implementing a retail risk management strategy, you can nullify many threats before they happen. In addition, this risk framework allows executives to consider the level of risk the company is willing to take on while pursuing innovation and potentially profitable new ideas.

Increasingly, digital is becoming the center of the shopping experience. Therefore, it’s imperative that companies in the retail industry meet their customers’ growing demands while avoiding the inherent risks that may surface along the way.

A Guide to Retail Audits

Store audits are an efficient way to track how your retail business is doing, whether you operate in one location or a multitude.

It’s important to keep your inventory up to date, so you’re presenting the best possible version of your business. Ensuring your inventory management tasks are completed on time is vital, which is where store audits come in, as they provide deep insights into the organization of the business.

These days, store audits have assumed a new role in retail businesses, providing more in-depth insights than they ever used to.

However, newbie retailers who aren’t familiar with store audits can find the task intimidating.

Below, we look at what a retail audit is, its advantages as well as tips on completing one successfully, so the process is made super simple.
 

What’s a Retail Audit?

Fundamentally, a retail audit evaluates the condition of your retail location using hard data. Vendors, employees or a third-party scrutinize your store or pop-up shop to gather information on what’s selling well and what isn’t.

Often, retailers use profits as their main method of measuring success, but when you carry out frequent store audits, you have a lot of extra analytics that provide a broader picture of what state your business is in. There are a wide range of areas an audit can focus on including, but not limited to, merchandising audits, competitor pricing audits, inventory loss audits etc.

During a retail audit, you’ll uncover insights such as:

• Damaged products
• Stock levels (including stock on your shelves and stock out the back)
• Sales volume
• An outline on what your competitors are doing
• Calculations on visual retailing and in-store presentations
• Position of shelves, quantity of frontings, amount of SKUs available, misplaced/incorrect shelf tags
• An insight into your pricing scheme
• Where the products are positioned in store

Bear in mind you’ll also have to select the kind of audit that harmonizes with your requirements most.

Take a look at the different kinds of store audits available:

• Marketing audit: This type of report studies customers for their reaction to your brand, understands how pedestrians interrelate with your business, giving you a more accurate insight into what other businesses of a similar niche are up to.

• Merchandising audit: Collects your entire stock information. Features stock quantities, efficiency of your merchandise costing, how merchandises are presented, the effect of your present visible marketing and merchandise campaigns.

• Asset protection audit: Highlights whether your existing prevention plan is effective, which items are stolen more than others, the location of those items in your store and what schemes are successful and which ones don’t work as well.

How often you perform a retail audit depends on the variety you opt for and your objectives. Whether you need to carry out a swift inspection each month or an in-depth audit once every quarter, be sure to think carefully about the possibilities and erect a system tailored to your retail requirements as well as your assets.
 

What Are the Advantages of a Retail Audit?

Not only do retail audits teach your staff more about the daily running of your business, they also:

• Uncover and solve irregularities when it comes to in-store displays, visual marketing and brand compliance
• Offer a structure from which to calculate financial metrics, KPIs and team performance
• Detect store-level issues, like operational problems and maintenance
• Pinpoint training requirements
• Find best practices to share with other stores/areas
• Execute and devise new in-store techniques and practises
• Strengthen relationships with your most important asset – your store managers and acquaintances
• Nurture positive competition between your stores
• Close the gap on task management, guaranteeing prior duties and actions have been fulfilled.

How to Perform a Store Audit Effectively

In retail, auditing a store is a critical action for the correct functioning and organisation of the business.
Here are some pointers on how to perform one successfully.

Organize Your Store Audit
It’s important to plan ahead so your store audit can be completed with minimal interference to the customer experience.

The optimal time to perform audits is during slow times when you have plenty of employees to successfully complete the audit while being able to maintain everyday business.

Another suitable time to carry out the audit is when the store is closed, but the issue with carrying out an audit outside of business hours is that it’ll involve arranging additional resources.

Ascertain Your Objectives
Before you begin your audit, make a list of goals. Consider what you wish to achieve alongside what areas you feel will need additional attention. Do your in-store displays look good enough? If not, then make sure you take the time to inspect each display.

And remember to include the exterior of your building in the audit, too. After all, this is what customers look at first – and it can make quite a first impression on potential customers as they walk through the door. Small things such as overflowing rubbish bins and a burnt-out light can have a real impact on how someone views your business.

Take Comprehensive Notes
During the auditing process, don’t forget to take notes as you go – or ask the third-party retailer carrying out your audit to. It’s also a good idea to take photographs as you go, recording the audit results, so you can evaluate the before and after pictures of the fixes as they’re made.

Assign Tasks to Employees
Don’t be shy when it comes to delegating fixes to staff once the audit is complete. As soon as your resources and budget permit, delegate tasks to employees, contractors, or external agencies. Although you may not be able to fork out on any changes until the next quarter, scheduling it in the books guarantees nothing is lost or left to build up until the next arranged audit.