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Wholesale & Retail Operations NQF Level 3

SAQA ID 63409

Learner Guide

Module 3: Understanding the Sector

Unit standard

114895 Define the core concepts of the wholesale and retail environment (NQF Level 02)

Module 3: Understanding the Sector Learner Guide T a b l e o f c o n t e n t s P a g e | 2

NC: Wholesa le & Reta i l Opera t ions NQF Leve l 3 © PMI Vers ion 1 : 25 /02 /2015

Table of Contents Table of Contents ....................................................................................................................2

Programme overview ...........................................................................................................4 Module overview ..................................................................................................................4

Unit 1: How the sector works ...................................................................................................5 1.1 Defining wholesale and retail ......................................................................................5

Wholesale trade................................................................................................................6 Retail trade .......................................................................................................................7

1.2 Subsectors and categories..........................................................................................7 Wholesale.........................................................................................................................7

The role of the wholesaler.............................................................................................8 Retail ................................................................................................................................9

Durable goods...............................................................................................................9 Semi-durable goods......................................................................................................9 Non-durable goods .......................................................................................................9

1.3 The South African retail landscape ...........................................................................11 Segmenting target markets ............................................................................................12 Some important South African retail groups...................................................................13

1.4 Stakeholders .............................................................................................................14 Activity 3.1.1: The South African wholesale and retail sector .....................................15

Unit 2: Target markets and consumer profiles.......................................................................16 2.1 The all-important consumer profile............................................................................16 2.2 Consumer behaviour and shopping patterns ............................................................17

Impulse buying vs unplanned buying..........................................................................18 Unit 3: Stock and cash flow ...................................................................................................20

3.1 Different departments: Why are they there? .............................................................20 Operations ......................................................................................................................20 Marketing........................................................................................................................21 Merchandising ................................................................................................................21 Human resources (HR)...................................................................................................21 Finance...........................................................................................................................22 Information technology (IT).............................................................................................22

3.1 Stock flow and the value/supply chain ......................................................................22 Purchasing/Procurement ................................................................................................22 Handling inventory..........................................................................................................23 Customer service............................................................................................................23 Accounting......................................................................................................................23

3.2 Cash flow...................................................................................................................24 Cash flow concepts and principles .................................................................................24

Receivables ................................................................................................................24



Payables .....................................................................................................................24 Inventory (stock) .........................................................................................................24 Cost cutting .................................................................................................................24 Profit margins..............................................................................................................25

3.3 Systems, subsystems and relationships ...................................................................25 Subsystems ....................................................................................................................25 Relationships ..................................................................................................................25 Activity 3.1.3: Stock and sales flow ................................................................................26

Unit 4: The wholesale and retail business environment ........................................................27 4.1 Laws governing the sector ........................................................................................27

Sectoral Determination 9: Wholesale and retail sector...................................................27 Wholesale & Retail Sector 2015—2016......................................................................27 Guidelines to Sectoral Determination 9 ......................................................................27

Occupational Health and Safety Act (OHSA) .................................................................29 Consumer Protection Act................................................................................................29 Activity 3.1.4: Laws governing the sector .......................................................................30

4.2 Bodies regulating the sector......................................................................................30 Useful reading ................................................................................................................30 Activity 3.1.5: Wholesale and retail terms.......................................................................30

Unit 5: Shrinkage and losses .................................................................................................31 5.1 Causes of shrinkage and losses ...............................................................................32 5.2 How to prevent shrinkage and losses .......................................................................33

How to spot a shoplifter ..................................................................................................33 5.3 How do shrinkage and losses affect the business? ..................................................34

Activity 3.1.6: Shrinkage .................................................................................................35 References ........................................................................................................................36



M o d u l e o v e r v i e w

Welcome to Module 3: Understanding the Sector, which includes the following unit standards:

Module 3: Understanding the sector Level Credits Unit standard Unit standard title

114895 Define the core concepts of the wholesale and retail environment 2 10

This module is made up of the following units: Unit Unit title 1 Segment the wholesale and retail sector

2 Identify the store's target market 3 Explain the flow of stock and cash through a wholesale/ retail operation

4 Demonstrate an understanding of the wholesale & retail business environment

5 Demonstrate an understanding of the concept of shrinkage and losses within a Wholesale and Retail environment



Unit 1: How the sector works By the end of this unit you should be able to:

Describe how the sector is made up

Understand the role of wholesale and retail operations within the market place

Identify subsectors and categories within the sector

Match subsectors and categories within the sector with stores

Describe stakeholders and their relevance to your organisation

1 . 1 D e f i n i n g w h o l e s a l e a n d r e t a i l US114895, SO1 AC1 Before we analyse our sector, let’s make sure we understand what part of the economy we referring to in wholesale and retail. The sector is also referred to as the FMCG sector. FMCG stands for “fast-moving consumer goods”. The term “consumer-packaged goods” (CPG) is also sometimes used.

Definition Wholesale “The selling of goods in large quantities, as for resale by a retailer”1 Retail “The sale of goods in small quantities directly to consumers”2 FMCG* Fast-moving consumer goods (FMCG) or consumer packaged goods

(CPG) are products that are sold quickly and at relatively low cost. Examples include non-durable goods such as soft drinks, toiletries, over-the-counter drugs, toys, processed foods and many other consumables.3

* “FMCG” usually refers to groceries, while “fast-moving” refers to the turnover and sale of goods. “Consumer goods” refers to goods that are bought and used by consumer, for example food, personal products, cleaning materials and so on.

When consumers buy a particular product, that product is in demand and needs to be supplied in the shortest possible time. This is to make sure that customers are satisfied and sales targets are maintained. The wholesale and retail sector is made up of businesses that sell related goods (in large or small quantities) to consumers. Wholesale and retail trade is part of a highly complex process of getting stuff—products like cosmetics and clothes, or foodstuffs like bread, meat and vegetables, or medicine like cough syrup and painkillers—from its raw form onto store shelves and finally to the consumer. This process is called the “supply and value chain”.

1 www.thefreedictionary.com 2 www.thefreedictionary.com 3 www.businessdictionary.com/definition/fast-moving-consumer-goods-FMCG.html

Module 3: Understanding the Sector Learner Guide P a g e | 6


Definition Supply chain

A “sequence or system of organisations or operations that work together to design, produce, and deliver a product or service to a market, extending from the extraction of raw materials to the distribution of finished products or services.”4

It is also called the supply stream. It is a complex process because so many people, procedures and activities (value chain) are involved at many stages from manufacturing, to packaging, to physically getting goods to the market (supply chain). The merchandise (goods) comes from different sectors such as agriculture, mining, manufacturing and even so-called information industries such as book publishing.

Value chain • Procuring raw materials • People • Processes • Sales targets

Supply chain • Products • Flow of products • Processes • Flow of processes

Wholesale trade The wholesale trade5 part of the process is an intermediate step in the distribution process. Wholesalers:

operate from warehouses of varying sizes;

4www.thefreedictionary.com 5 http://www.bizminer.com/resources/glossaries/economic-sectors.php



are situated in industrial areas, away from shopping centres and other areas that are designed for public shopping;

may have sales offices and branches elsewhere and these will not carry or display stock;

they typically do not advertise their goods to the public; and

orders are placed by telephone, email and/or the internet, or through face-to-face marketing (sales representatives, or reps, calling on retailers). These methods are also used to market their goods to their clients.

Their clients are the retailers, who do not pay VAT at this stage, but instead charge VAT on the goods they sell to the public. Retail trade The retail trade part of the process is the final step in the distribution process. Retailers advertise and sell their goods to the public and are divided into two groups—those who sell their goods from stores and those who do not. Retailers who sell their goods from stores locate and design their spaces to attract as many customers as possible. They do this through displays and by advertising in newspapers, magazines, and on radio and TV. The internet is also widely used to advertise goods and products to the consumer. Retailers who do not sell their goods from stores may do so through direct marketing. For example they make use of “infomercials”, paper pamphlets posted or directly dropped in consumers’ post-boxes and, of course, increasingly on the internet. In South Africa, as in the rest of Africa, there is an enormous, and growing, informal sector, with thousands of street vendors trading in all our cities and towns.

1 . 2 S u b s e c t o r s a n d c a t e g o r i e s SO1 AC1 EEK1 CCFO DEMONSTRATING, CCFO COLLECTING

Several subsectors and categories exist within South Africa’s wholesale and retail sector,6 which define its various market segments. Wholesale Wholesale traders operate on a large scale and can sell their goods either directly to retailers for resale, or to other wholesalers or resalers through an agent on a commission basis. They may obtain their goods from agents and brokers. The may be import/export agents, auction companies or representatives of manufacturers. Some wholesalers are connected to retail chains, providing only products needed by the chain involved. The products and goods traded by wholesalers are divided into several subsectors, which supply goods to the wholesaler. Wholesalers may specialise in supplying merchandise from one particular subsector, or may carry a wide selection of goods. One example of such a general wholesale group is Makro (part of the Walmart group). Wholesale subsectors are:

6 FNB. May 2013. Sector Chartbook: Retail & Wholesale Trade.



Agricultural raw materials and livestock

Food, beverages and tobacco

Textiles, clothing and footwear

Household goods

Precious stones, jewellery and silverware

Solid, liquid and gaseous fuels and related products

Metals and metal ores

Construction and building materials

Other intermediate products, waste and scrap

Machinery, equipment and supplies

Other goods

The role of the wholesaler Wholesalers play a very important role in the supply chain, providing services to both manufacturers and retailers. Services to manufacturers include:7

Placing advance orders with manufacturers based on expectations for demand for products. This helps the manufacturer to plan production and secure economies of scale.

Providing transport to carry goods from producers to warehouses.

Engaging in sales promotion activities, often employing expert sales representatives.

Procuring goods on a cash basis, thereby helping manufacturers financially.

Keeping manufacturers informed of changes in customers' behaviour, habits, tastes, preferences and fashion.

Establishing retail prices of goods. Services to the retailers include:

Acting as buying agents. This saves retailers the trouble of sourcing goods from various manufacturers.

Keeping retailers informed of new products, their uses and changes in price. In some instances, they help retailers advertise and sell products.

Providing financial assistance by selling goods on credit, thereby allowing retailers who operate on low working capital.

Acting as warehouse keepers. They protect retailers from the risk of loss arising from holding large volumes of stock.

Grading of products according to quality;

Repackaging goods into smaller lots;

Providing transport to deliver goods to retailers.

7 http://business.gov.in/manage_business/wholesalers_retailers.php



Retail The retail market is divided up into three subsectors, namely:

Durable goods Durable goods have a long lifespan. The consumer is therefore unlikely to buy these very frequently. Examples of durable goods include:

Furniture

Household appliances (fridges, stoves, microwave ovens, vacuum cleaners)

Electronics and entertainment equipment (TVs, audio equipment, computers)

Transport (cars, motorbikes)

Jewellery

Semi-durable goods Semi-durable goods can be used over and over, but do not last as long as durable goods. Examples of semi-durable goods include:

Clothing and footwear

Car spare parts and tyres

Books

Sports equipment

Household décor items

Non-durable goods Non-durable goods mean exactly what the name says. They have a limited lifespan. Examples of non-durable goods include:

Food

Beverages

Pharmaceutical products Within these three subsectors, the market is further divided into the following categories8:

General dealers (40%)

Retailers of food, beverages and tobacco in specialised stores (10.5%)

Retailers of pharmaceutical and medical goods, cosmetics and toiletries (4.0%)

Retailers in textiles, clothing, footwear and leather goods (20.0%)

Retailers in household furniture, appliances and equipment (7.2%)

Retailers in hardware, paint and glass (6.0%) 8 FNB. May 2009. Research Economics Sector Chartbook: SA Retail Trade.

Durable Non-durable

Semi-durable



All other retailers (12.1%), which include:

o Retailers in reading matter and stationery

o Retailers in jewellery, watches and clocks

o Retailers in sports goods

o Retailers of personal and household goods and

o Retail trade in second hand goods Looking at the categories above, it is easy to tell which retailers will only sell goods and which others are likely to provide after-sales services as well, for example repairing or installing goods. Retailers play an equally important role in the supply chain, on their part providing services to manufacturers/wholesalers and consumers. Services to manufacturers include:9

Providing outlets from which to sell products supplied by wholesalers and manufacturers.

Saving the manufacturers/wholesalers from the inconvenience and expense of selling the goods in small lots to a large number of consumers.

Communicating communicate the needs, desires and behaviour of consumers to the manufacturers/wholesalers.

Providing transport from warehouses to the end users.

Providing storage for stock. Services to consumers include:

Anticipating consumers’ needs and order in stock to satisfy customer demand, providing the public with a wide variety of products.

Arranging and displaying stock, and packaging them attractively for customers.

Performing an advisory and guiding role for customers by making them aware of new products and educating them about these.

Keeping customers informed of changing trends.

Providing services such as free home delivery, aftersales service, and credit and so on.

9 http://business.gov.in/manage_business/wholesalers_retailers.php



1 . 3 T h e S o u t h A f r i c a n r e t a i l l a n d s c a p e US114895, SO1 AC2, EEK1, CCFO COLLECTING, CCFO DEMONSTRATING The retail landscape in South Africa is as diverse as it is large, accommodating a wide range of different types of retailers. South African retailers can be divided into two groups, namely small-scale retailers and large-scale retailers. Among small-scale retailers, again, you will find two types, namely small shop owners and vendors who sell their goods informally on streets or at markets. For the purposes of this module, we look at the large-scale retail landscape in the country.

In 2014, it was estimated by the Bureau of Market Research that total retail sales for the year were expected to amount to R751 229 million10.

Large-scale retailers trade the widest range of products to the biggest segment of the market, although small trade is on the increase. Large-scale retailers may be located in shopping centres or malls, or on premises away from malls. The biggest retailers in the country can be classified by the merchandise they stock.

Figure 1: Big retail groups11

10 Bureau of Market Research. 2014. UNISA. Retail Trade Sales Forecast for South Africa, 2014, pp28, 29. 11 Various annual reports

Gen

eral

• Makro • Game • Pick n Pay Hyper • Clicks

Gro

cery

• Spar • Woolworths • Pick n Pay • Shoprite • Checkers Li

ving

/hom

e

• @home • Mr Price home • Boardmans



Segmenting target markets Knowing what your customers can afford to buy helps you to market correctly. You need to establish how much money they have to spend. The following are some of the factors that help you do this:

age;

education;

where they live;

living standards measure, etc.

Measuring poverty and wealth12

• The South African Audience Research Foundation is a non-profit market research organisation that uses a market segmenting tool called the Living Standards Measure (LSM) to indicate how poor or wealthy people are.

• LSM has become the most widely used market research tool in Southern Africa.

• It divides the population into 10 LSM groups, from 1 (lowest) to 10 (highest).

o LSM 1—4 represents the lower income group

o LSM 5—7 represents the middle income group

o LSM 8—10 represents the higher income group

Target markets often overlap like this:

• Lower to middle income group

• Middle to higher income group

These potential customers are called the retailer’s target market. By identifying a store’s customers in this way you divide the market into different segments. All marketing efforts are

12 http://www.saarf.co.za/LSM/lsms.asp

Clo

thin

g (m

id- t

o hi

gh)

• Edgars • Foschini • Markham • Exact • Mr Price • Miladys • Truworths • Woolworths • YDE • Identity

Clo

thin

g (d

isco

unt)

• PEP • Ackermans • Legit • Jet • Jetmart

Stat

ione

ry &

boo

ks

• CNA • Exclusive Books



aimed at the target market. A target market can be defined as a specifically defined group of consumers that is likely to need or want a product.

Figure 2: Grocery groups

The table below looks at the target market for different stores using the Living Standards Measure (LSM): Some important South African retail groups15

Store Merchandise Income group targeted

LSM

General Makro (Wholesale/Retail)

Food Liquor, general merchandise

Lower to middle Middle to upper

2—6 6—10

Game General merchandise, FMCG* and non-perishables Middle to upper 5—10

Pick n Pay Hyper Food, wine, clothing Middle to upper 6—10

Clicks Health, beauty, and lifestyle products Middle to upper 5—10

Groceries Spar Convenience food, baked goods, wine, fresh produce

and groceries Middle to upper 5—10

Woolworths Food Convenience food, fresh produce Upper 8—10

Pick n Pay Food, wine, clothing, limited general merchandise Upper 8—10

Shoprite Basic foods and household goods Middle 4—8 Checkers Food, specialist wine, cheese and butchery, fresh

produce Higher 7—10

Jetmart Kitchenware, music, appliances, DIY products, household Lower 1—6

15 Various annual reports

PNP Group

•  Corporate stores

•  Hypers •  Family Stores •  Boxer

Shoprite Group

•  Shoprite •  Super stores

(Hypers) •  Checkers •  Usave •  OK

Spar Group •  Super Spar

•  Kwik Spar



textiles, stationery, food, clothing, beauty products (selected stores)

Clothing and footwear (mid- to high price range) Edgars Clothing, footwear, cosmetics, mobile phones,

homeware, accessories Middle to upper 5—10

Foschini Women’s fashionwear, footwear and cosmetics Middle to upper 6—10

Markham Men’s fashionwear, footwear Middle to upper 6—10

Exact Clothing, footwear, accessories Middle 5—7

Mr Price Value fashionwear, footwear Middle to upper 6—10

Miladys Clothing, footwear, underwear, cosmetics, accessories Middle to upper 6—10

Truworths Women and men’s fashionwear, footwear, cosmetics Middle to upper 6—10

Woolworths Clothing

Clothing, footwear, accessories, home items, and beauty products

Middle to upper 6/8—10

YDE High fashionwear Middle to upper 5—10 Identity High fashionwear Middle to upper 5—10

Clothing and footwear (discount) PEP Basic clothing and footwear Lower to middle 1—5

Ackermans Value clothing and footwear Lower to middle 4—7

Legit Budget fashionwear Lower to middle 1—6

Jet Family clothing and footwear Lower to middle 1—6

Home @home Homeware and furnishings Upper 8—10 Mr Price Home Textiles, homeware, furniture, children’s homeware Middle to upper 6—10

Boardmans Kitchenware, furniture and funishings, outdoors Middle to upper 5—110

Stationery/bookstores CAN books, music, stationery, magazines, toys, photographic

equipment, cards, DVDs, computer consumables Middle to upper 5—10

Exclusive Books Books, magazines Middle to upper 5—10

1 . 4 S t a k e h o l d e r s US114895, SO1, AC3 EEK2 CCFO DEMONSTRATING A stakeholder is any person, group or organisation that has an interest in an enterprise or project. There are two types of stakeholders:

The stakeholders that are relevant to your store will include internal support functions like:

Finance,

HR, buying,

IT,

Marketing,

Merchandising departments, as well as

Internal External



Your bosses, managers and co-workers. External stakeholders include:

Wholesalers and suppliers—not only manufacturers;

Suppliers - of shelving, racking systems and training providers;

Shareholders—if your company is publicly listed on the Johannesburg Stock Exchange (JSE), the investors own shares in the company. They are concerned with whether your company is making money or losing money (as it is their money that they have invested!); and

Customers (one of the most important), who must always have a positive experience and be satisfied with the price and quality of products and the high level of customer service.

Activity 3.1.1: The South African wholesale and retail sector Please refer to your Learner Workbook for details.



Unit 2: Target markets and consumer profiles By the end of this unit you should be able to describe:

Types of consumer profiles

Consumer shopping patterns

Your store’s target market according to the organisation’s market segment

Procedures for marketing your store to its target market, informed by your organisation’s marketing strategy

2 . 1 T h e a l l - i m p o r t a n t c o n s u m e r p r o f i l e US114895, SO2 AC1 EEK3, CCFO COLLECTING

Definition “A consumer profile is a way of describing a consumer categorically so that they can be grouped for marketing and advertising purposes. It has been shown to be more profitable to target advertising to a specific market segment. As a short-hand way of talking about consumers, market segments are often represented by consumer profiles.”16

Marketing experts use various techniques to profile consumers. A popular method is to use geographic, demographic, psychographic and behavioural information.

Figure 2: Profiling customers

16 http://marketresearch.about.com/od/market.research.glossary/g/Consumer-Profile.htm

Customer profile

Locate your customer's

neighbourhood, city or town

Geographic

Describe your customer's age,

gender, education, income

Demographic

Describe your customer's lifestyle,

social status, personality

Psychographic

Understand your customer's buying

behaviour

Behavioural



2 . 2 C o n s u m e r b e h a v i o u r a n d s h o p p i n g p a t t e r n s US114895, SO2 AC2 EEK3 Humans are creatures of habit. We like to do the same things over and over, which makes us predictable. Marketers and merchandisers take advantage of these habits to get customers to buy more products. For example, some products are placed on shelves that are easy to reach, because studies have shown that once a customer touches a product they’re more likely to buy it. The Marketing Teacher website17 identifies five types of shoppers by looking at their overall shopping behaviour. These are:

• The “touchy-feely” shopper: This is someone who will usually buy something once it’s touched.

• The “mall lingerer”: Many people love to shop. They take their time shopping and often make their shopping excursion an outing for the whole family.

• The “guerrilla shopper”: Other people hate shopping and cannot get out of there quickly enough. They will often put off their shopping till the last minute, then run around to do their shopping in one go. They most likely shop alone.

• The “sales junkie”: These shoppers will go to great lengths to find a bargain. What’s more, if they find a bargain in a shop, they’re likely to think there will be more and that everything in the shop is a bargain. They tend to spend more money.

• The “social shopper”: These shoppers enjoy shopping with friends and almost never shop alone. They typically do a lot of impulsive buying.

The same website further refines shopper types by looking at their specific shopping style. It identifies them as:

• “Chameleons”: How these consumers shop depends on circumstances. The pattern is therefore always changing and may depend on what products are available, how much time they have and what their initial intention was to go to the store in the first place.

• Collectors/gatherers: These shoppers buy in bulk to stockpile items, particularly groceries. This is done either to save money or avoid another trip to the store. They typically would try to get the best prices and make use of store specials, guarantees, coupons and the like.

17 http://www.marketingteacher.com/consumer-behavior-shopping-habits/

To find out who your customers are, ask the following questions: Geographic profile

Where will you find your customer—in which city and neighbourhood, at which restaurant or sports field?

Demographic profile

How old are your customers on average? What gender are they—are they predominantly male or female? Do they come from small or large families? What level of education have they attained? On average, in what income group would you place them?

Psychographic profile

What lifestyle are they likely to have and what is their social status? What are their hobbies?

Behavioural profile

How does your customer go about shopping? Why does your customer come to shop at your store? What are their needs? How do they know about your store and how do they benefit from shopping there?



• Foragers: These shoppers are very focused and will buy only what they wanted in the first place. They spend a lot of time looking for what they want and has no loyalty to any one store. They also prefer to shop alone.

• Sleepers: These shoppers do not care one way or another. They may go out to buy the desperately needed dishwashing liquid, but then again, they may change their mind and put it off till tomorrow.

• Predators: These shoppers don’t like shopping and want to get it done as quickly as possible. For that reason they mostly shop alone, will typically draw up a list before shopping and plan in advance what shops to go to. They prefer shops where they will find the items on their list easily and quickly.

• Searchers: These shoppers are a bit like the “mall lingerer” mentioned above. They enjoy shopping and consider it an activity of leisure like going for a picnic. They tend to buy lots of unplanned items.

Impulse buying vs unplanned buying

Retailers do everything in their power to get customers to spend more money and several techniques are used to do that (See below). Consumers therefore have to make many on-the-spot decisions while shopping. But there is a difference between buying something on impulse and buying something unplanned yet needed. Unplanned buying While shopping, something reminds the shopper that they need something and the shopper buys it.

Impulse buying This is done on the spur of the moment (and is more likely to happen if a shopper is not alone), often without the shopper considering the cost of the item or consequences of the purchase. It is usually triggered by the need for immediate self-gratification.

Techniques used to encourage impulse buying

Placing certain products on shelves next to each other will remind customers how well those products go together—for example, placing spaghetti next to instant spaghetti sauces. This merchandising technique is called cross merchandising.

Extras—shop assistants may suggest to a customer to buy sunscreen if the customer is about to buy a bikini.

Special attention by store employees makes customers feel good.

Promotional sales and discounts. Buy one get one free offers, or buy two for R20. These make the customer think the products are on sale, when they may not be.

Shoppers like Shoppers do not like

Touching products

Mirrors

Discovering bargains

Talking to store staff

Being recognised by store staff

Too many mirrors

Long queues

Having to ask staff stupid questions

Products that are out of stock

Prices not clearly visible

Unfriendly, unhelpful or incompetent service



Crowded shops and aisles

Activity 3.1.2: Target markets and consumer profiles Please refer to your Learner Workbook for details.



Unit 3: Stock and cash flow By the end of this unit you should be able to:

Identify the various operational departments that function in stores and describe their main purpose

Explain stock flow through the store and how this fits in with the overall business

Explain cash flow through the store and how this fits in with the overall business

Explain the support functions that are necessary to operate a wholesale or retail outlet

Explain your job’s place in the organisation’s systems and sub-systems and what affect it has on your co-workers

3 . 1 D i f f e r e n t d e p a r t m e n t s : W h y a r e t h e y t h e r e ? US114895, SO3 AC1 EEK4, CCFO IDENTIFYING, CCFO ORGANISING Businesses are made up of various divisions and / or departments. The diagram below shows how a retail store is structured. A store is made up of various departments. Various factors determine how the store is structured, the most obvious being size and type of store.18 The structure of a large clothing chain like Mr Price would be significantly different to a small, privately owned boutique, for example. While structures may vary, these are the departments you will generally find in larger retail stores. Bigger businesses will have more departments and therefore more staff.

Figure 3: Typical retail store structure

Operations The operations department is run by operations managers, who are responsible for the smooth operation of stores. In a retail group, operations managers are likely to be in charge of several stores and their primary responsibility is to make sure that all business processes

18 http://www.hierarchystructure.com/retail-business-hierarchy/

Retail: operational

departments

Operations

Marketing

Merchandising

Human resources

Finance/Accounts

Information technology



run efficiently. Another big responsibility for an operations manager is cost control and management. This is done by forecasting sales figures for specific outlets along with how much stock (inventory) will be required.20 Operations managers will analyse stock levels from time to time and study sales figures to maintain optimal (ideal) stock levels. These figures indicate what stock should be ordered, how much should be ordered and when it should be delivered. The operations department is also responsible for the health and safety of staff and customers. Marketing This will vary according to the retailer’s business model and marketing strategy. What they all have in common is to improve the retailer’s profits. They do this by developing plans to attract attention and generate interest among the public about what is for sale. For example, they may promote specific brands through special sales and incentive programmes. They make use of print advertisements in newspapers and magazines, radio and television ads and, increasingly, online ads and social media such as Facebook and Pinterest. The marketing and merchandising departments work closely together to get customers to buy more products.21 Merchandising The purpose of the merchandising department is to increase sales, generate revenues and improve profits for the retailer. Merchandising is about making sure that products are visible and available. This is done by using merchandising techniques such as cross merchandising, which encourages impulse buying. Merchandisers develop floor plans and three-dimensional displays of products to achieve this. Merchandisers’ responsibilities include:

o window displays;

o displays at point of sale;

o implementing planograms (this is a diagram or model that indicates where retail products must be placed on shelves in order to maximise sales); and

o special promotions. Depending on the size of the operation, the department will work with the operations and marketing departments to determine floor layout, traffic flow and display points, as well as what items to display and how to display them. They often design window displays, following a specific theme, promotion or time of year (for example Christmas, Eid or Diwali). Visual merchandising involves a lot of physical work, such as building and painting props and signage, putting up lighting and signs and dismantling displays.22 Human resources (HR) The human resources (HR) department recruits staff and terminates employment when and if necessary. This is the department responsible for everything that affects employees, including medical aid, leave, sick leave, disciplinary processes, etc. The department plays a vital role in developing a healthy working culture and environment. Employees who are well trained and happy will be much more likely to provide good, expert customer service, and it is the job of this department to make this happen. The HR function is a little different in the wholesale and retail sector, in that jobs in this sector are relatively demanding, leading to a 20 http://work.chron.com/basic-job-skills-retail-operations-manager-25610.html 21 http://smallbusiness.chron.com/purpose-marketing-sales-57689.html 22 http://www.jobguide.thegoodguides.com.au/occupation/Visual-Merchandiser



higher-than-average staff turnover. The department’s work is further complicated by the necessity to employ a high component of contract staff. Finance The finance or accounts department is responsible for setting up sales and purchasing records, preparing balance sheets and profit and loss accounts, as well as calculating and paying staff wages and salaries. It has to report financial information to top management and, depending on size, to external regulatory bodies. Also depending on size, the department is expected to analyse figures, measure performance and make strategic recommendations to top management. It may also be expected to analyse the results of specific product promotions or examine the performance of individual store. Large groups may have separate finance teams working in different areas of the business. Information technology (IT) Big groups will generally have separate information technology (IT) departments. This department will develop, maintain and manage computerised payment systems. These are systems used at the tills (point of sale). IT is also critical in the supply chain process to make sure maximum stock turnaround and sales targets are achieved. More and more stores have an online presence these days and the IT department is responsible for keeping these up to date and functional. Platforms include websites and social media activities such as Facebook, Pinterest and YouTube. Service-orientated retailers also have online customer service systems and an efficient and user-friendly customer feedback functionality. Finally, the IT department attends to all technology problems in the business.

3 . 2 S t o c k f l o w 23 a n d t h e v a l u e / s u p p l y c h a i n US114895, SO3 AC2 EEK5 CCFO IDENTIFYING, CCFO ORGANISING The work processes that take place in retail stores are mostly similar, because they are based on tried and tested practices. No matter what your position within the store, it is important that you have a basic understanding of what the processes are and what they entail.

Purchasing/Procurement This is the first in the chain of processes that takes place in the retail environment to get merchandise from supplier to the consumer. Depending on the size of the store, the buying aspect can be handled by a store owner, manager or a centralised buying department. All the large retailers have centralised buying departments. In smaller companies, retail store

23 Retail Workflow & Operational Processes. Demand Media. David Ingram. Accessed 4/2/2015. http://smallbusiness.chron.com/retail-workflow-operational-processes-15385.html

Purchasing Handling inventory

Customer service Accounting



managers may buy stock for one or more outlet, and report stock levels to their central head office. It is important that stock levels are controlled—holding too much stock is not cost-effective, while being understocked will annoy your customers and lose sales, so staff are expected to take stock regularly. Items to be accounted for are those on the shelves as well as those in storage spaces. The ordering process may be automatic—that is, an order for a particular item and brand (Sasko white bread, say) may be automatically delivered every day, whereas other items may be reordered as needed (Sony flat screen TV, say). The exact process may differ from store to store, but the principle remains the same. It is important for stores to remain fully stocked. Handling inventory Inventory is handled by every employee. It starts with receiving stock, followed by unpacking boxes, sorting inventory received, disposing of boxes and packing goods onto shelves, ending with products being checked out at till point and cashiers receiving payment for purchases. New items are stored in line with company policy—this is usually done following the first in, first out rule (FIFO)—products are restocked on the shelves as and when needed. Staff are expected to keep shelves neat and clean, so shelves that are left untidy after customers have picked up and replaced items have to be straightened. Stock also has to be kept free of dust. Staff are expected to reorganise shelves and displays from time to time, to give the store a fresh look and keep customers interested. Customer service Customer service is at the heart of retail operations—good customer service can make a store and poor customer service can break it. The store exists for the sole purpose of selling goods. Customers are the buyers of goods at your store. They are there to look at, touch and buy products. Everything about the store revolves around the customer. If customer service is good, customers will appreciate it. If not, they will simply take their buying Rands to another store.

Customer service in a retail store can be broken down into three areas:

In-store assistance Floor staff and management helping customers find what they are looking for quickly and easily, and in friendly manner.

Transaction processing Cashiers ringing up transactions, accepting payments and packing products for customers.

Complaints processing Staff dealing with product returns, claims of short changing, potential issues arising between customers and store staff, and general dissatisfaction with the store's service or products. This may be done in person, telephonically or online, depending on the store.

It is important that customer service is friendly, professional and knowledgeable in every area. Accounting In retail groups, each outlet reports everything that is bought and sold, as well as all activities that have an impact on what is bought and sold, to head office. This includes financial



information, which has to be reported to the accounting department. Managers send reports on sales figures, refunds, lost inventory, payroll information and information on bank deposits to head office at the end of every day.

3 . 3 C a s h f l o w 24 US114895, SO3 AC3 EEK6 CCFO IDENTIFYING, CCFO COLLECTING If customer service is at the heart of a retail operation, then cash flow is the oxygen that keeps it alive. It is crucial to the company’s success. It’s all pretty simple—when a retailer sells a product, it receives payment in return and that money, minus the profit, can then be used to restock the item, right? Wrong. It is a complex balancing act that has to take into consideration the payment terms of different suppliers, overhead costs and employee needs, among others. Retailers use various cash management methods and systems to optimise cash flow. Cash flow concepts and principles Receivables This is money owed to the retailer for products sold. Accounts receivable applies in operations that allow credit (for example, Edgar’s). Other stores, like Pick n Pay and Game, receive payment almost immediately, at till point. If a customer pays with a credit card, the payment may take a few days to make its way into the retailer’s account.

Payables Accounts payable is the money the retailer owes its suppliers. In business it is important to balance money coming in and money going out. Even a business that does well needs to manage how and when it makes payments, because it can sometimes happen that more money is needed to pay out than what money is coming in.

Inventory (stock) One of the trickiest things to manage in a retail environment is inventory. The retailer must hold enough stock to keep customers happy but not keep so much that it places a burden on the business. Holding too much stock takes up space that the retailer could use for items that move more quickly. If an item of clothing, for example, doesn’t sell within a certain period of time, it becomes necessary mark the item down, leaving the retailer to break even or with a loss. Stock control is a complicated area of expertise.

Cost cutting A retail business depends on sales volume for profits. Accountants and management are always looking for ways to cut costs and boost cash flow. When considering cost-cutting measures and improving cash flow, staffing is often the first place where management will look. The store needs enough staff for the business to run smoothly, but if too many people are employed, profits are reduced and cash flow may suffer. Other areas that may be considered are advertising, distribution and electricity consumption, among others.

24 Ways to Boost the Cash Flow in Retail. Demand Media. Cindy Phillips. Accessed 4/2/2015. http://smallbusiness.chron.com/ways-boost-cash-flow-retail-37735.html



Profit margins The profit margin is the amount by which revenue (income) from sales exceeds costs in a business. Retailers calculate a break-even cost on products (the price of the product plus overhead and other costs involved in running the business). They then calculate a mark-up on the product. This mark-up is the profit. It is important for management to get this right to remain in competitive.

3 . 4 S y s t e m s , s u b s y s t e m s a n d r e l a t i o n s h i p s 25 US114895, SO3 AC5 EEK8, EEK9

“Organisational systems include people, processes, formal and informal rules and other elements that create a hierarchy for structure and communication.”

How well a retailer works as a system is evident from how well its products and customer service are received and, all importantly, how much profit it makes. How the business is structured as a system will differ from store to store, and channels of communication, departments, teams, and cultural norms and values all work together to determine the store’s character and way of doing things. Subsystems Within the organisational system of your company, you will find subsystems—i.e. smaller groups of employees that work together within the larger system. Subsystems include departments, special projects, teams and informal groups of employees that work together to complete certain tasks. Identifying these groups within your larger organisation helps you get a picture of its organisational structure. Companies use organisational charts to map out departments and divisions within their organisational systems. These are sometimes called organograms. A retailer might have departments for each major category of products it sells. You may find yourself working in a team on a special project (helping the merchandiser build a front-of-store display, say). This is an example of a smaller subsystem within your department. These subsystems are generally more informal and less permanent in nature. If you regularly drink tea with a certain group, that is yet another example of an informal subsystem.

We looked at various subsystems earlier – merchandising, accounts, human resources etc.

Relationships The bigger retailers (and hopefully the smaller ones, too) will have structured organisational charts mapping out the hierarchy of and relationships between different departments and the people within those departments (also refer to as the value chain). Each subsystem or department will have its own objectives, strategies and processes that will fit in with the mission and objectives of the business. The merchandising department, for example, will have goals and strategies around a physical design for the store with the goal of selling more

25 What Are Organizational Subsystems? Demand Media. Neil Kokemuller. Accessed 4/2/2015. http://smallbusiness.chron.com/organizational-subsystems-41735.html



products. The buying department will have goals and strategies around procuring the best quality merchandise at the best prices. Relationships within a team and how well it works together often affects the entire business. It is not only the business as a whole that needs direction with established policies, job descriptions and effective management. Each department, each team and each individual within that team need to work toward common, explicitly stated goals. If one member of a team has a bad day or gets into an argument with another, that affects the atmosphere, mood and motivation of the entire team, which is then likely to underperform. This, in turn will have an effect on other teams, the department and, ultimately, the entire company. As they say, it takes only one bad apple to spoil the whole batch.

Activity 3.1.3: Stock and sales flow Please refer to your Learner Workbook for details.



Unit 4: The wholesale and retail business environment By the end of this unit you should be able to:

Identify the various forms of legislation that govern the sector by their titles

Explain the objectives of the different pieces of legislation

4 . 1 L a w s g o v e r n i n g t h e s e c t o r US114895, SO4 AC1 AC2 Sectoral Determination 9: Wholesale and retail sector The employment of all wholesale and retail workers is governed by a piece of legislation known as Sectoral Determination 9: Wholesale and retail sector.26 This is part of the Basic Conditions of Employment Act (75/1997). The determination was amended in February, 2013. This legislation protects the rights of workers in the sector and sets:

minimum wages

working hours

number of leave days

termination of employment rules It applies to employers and workers in the wholesale and retail sector, including those in:

merchandising

warehousing

distribution operations It does not apply to workers covered by:

other sectoral legislation

a bargaining council agreement. Any issues not covered by this sectoral determination will be covered by the Basic Conditions of Employment Act.

Wholesale & Retail Sector 2015—201627 Each year, the Department of Labour issues a document setting minimum wages for all categories of workers in the wholesale and retail sector.

Guidelines to Sectoral Determination 9 It is the responsibility of an operation’s HR department to make sure that the Act and guidelines are followed and adhered to through the operation’s staff policies and procedures.

26 http://www.labour.gov.za/DOL/legislation/sectoral-determinations/sectoral-determination-9-wholesale-and-retail-sector 27 Wholesale & Retail Sector from 01 February 2015 to 31 January 2016 http://www.labour.gov.za/DOL/downloads/legislation/sectoral-determinations/basic-conditions-of-employment/wholesaleretailwages2015to16.pdf



Sectoral Determination 9 regulates all aspects of being employed in the wholesale and retail sector, as per the table below. Sectoral Determination 9 regulates: Purpose of regulation Annual leave www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-annual-leave-wholesale-and-retail

Sets guidelines for annual leave, covering aspects such as the number of days’ leave to which employees are entitled, when the best time is to take leave and working on public holidays, among others.

Attendance registers www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-attendance-registers-wholesale-and-retail

Employers are expected to keep an attendance register for all workers, detailing each worker’s name, day of the week, hours worked, etc.

Child Labour (Wholesale and Retail) www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-child-labour-wholesale-and-retail

Children under the age of 15 may not be employed and children between the ages of 15 and 18 may be employed only under certain circumstances.

Commission work www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-commission-work-wholesale-and-retail

When an employer commissions work, several conditions apply. A written agreement must be drawn up covering all of these.

Deductions www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-deductions-wholesale-and-retail

This regulation allows for deductions from a worker’s pay only under certain conditions. Some are compulsory (e.g. benefit funds) while others may become necessary from time to time (e.g. damage or loss).

Employment contracts www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-employment-contracts-wholesale-and-retail

Employers must give employees details of their employment in writing, covering all conditions including salary or wages.

Family responsibility leave www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-family-responsibility-leave-wholesale-and-retail

Employees are allowed to take paid leave to attend to certain family situations. This regulation sets out the conditions under which such leave may be taken.

Maternity leave www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-maternity-leave-wholesale-and-retail

Workers who are pregnant have the right to take maternity leave. This regulation stipulates the conditions.

Minimum wages www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-minimum-wages-wholesale-and-retail-sector

Employers are required by law to pay workers a minimum wage. These are stipulated every year.28

Overtime www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-overtime-wholesale-and-retail

This section regulates overtime working hours and pay for such hours.

Pay slips www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-pay-slips-wholesale-and-retail

Employers are expected by law to give a worker a payslip each time the worker gets paid. This regulation lists what information is required on the payslip.

Sick leave www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-sick-leave-wholesale-and-retail

Workers are allowed a certain number of sick leave days. This section lists how much sick leave is allowed and what proof of illness is required.

Temporary employment services www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-temporary-employment-services-wholesale-and-retail

This section lists regulations that apply to employ temporary workers through employment agencies.

Termination of employment www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-termination-wholesale-and-retail

Certain procedures apply when a worker’s employment contract is terminated, whether by the employer or the worker.

28 http://www.labour.gov.za/DOL/downloads/legislation/sectoral-determinations/basic-conditions-of-employment/wholesaleretailwages2015to16.pdf



Work clothing www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-work-clothing-wholesale-and-retail

Employers are compelled to give all workers work clothing.

Working hours www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-working-hours-wholesale-and-retail

This section sets out maximum working hours, meal breaks, rest periods and night work, including working hours for part-time workers.

Working on public holidays www.labour.gov.za/DOL/legislation/acts/basic-guides/basic-guide-to-working-on-public-holidays-wholesale-and-retail

This section Sets out conditions of and remuneration for working on public holidays.

Working on Sundays 1.5 www.labour.gov.za/DOL/legislation/acts/basic-

guides/basic-guide-to-working-on-sundays-wholesale-and-retail

This section sets the wages for working on a Sunday.

Occupational Health and Safety Act (OHSA)29 The purpose of the Occupational Health and Safety Act (No 181 of 1993) is to protect the health and safety of all workers. It also protects people whose health and safety may be at risk because of the activities of employees. For example: a customer slipping on a wet floor and breaking a leg. The wholesalers and retailers must comply with the health and safety regulations prescribed for the sector. But while at work, it is equally important for employees to comply with the health and safety measures expected of them by their employers. If an employee is injured or becomes ill as a result of an accident or conditions at work, the employee may claim compensation from the Compensation Fund. Consumer Protection Act30 The South African National Consumer Protection Act (CPA) came into effect on 1 April 2011. The purpose of the Act is to promote fairness, openness and good business practice between the suppliers of goods or services and consumers of goods and services. All wholesalers and retailers are expected to comply with the Act. The Act sets out the fundamental rights of consumers. The two below are important when dealing with customers in the wholesale and retail environment. Consumer rights31 Right of equality

Retailers may not treat any customer differently to any other. In other words, all customers must be treated with equal courtesy and service and no unfair discrimination is allowed.

• Customers must have equal access to goods. • The same pricing must apply to all customers. • Retailers are not allowed to withhold products from customers for any

reason. • Retailers may not decide for themselves whether a customer has the

money to pay for a product or products. Right to choose • The customer is free to choose where to shop.

• The customer has the right to cancel an order (e.g. platters prepared for a special occasion). In this instance a deposit might cover the

29 http://www.labour.gov.za/DOL/legislation/acts/occupational-health-and-safety/read-online/amended-occupational-health-and-safety-act 30 http://www.westerncape.gov.za/other/2011/3/consumer_protection_act.pdf 31 Consumer Act brochure. BDO Southern African Coordination (Pty) Ltd. June 2010. Chapter 2.



expense to the supplier or a cancellation fee may be charged, depending on store policy.

• The customer is allowed to examine goods and is not responsible for any loss or damage to any goods displayed by a supplier unless the loss or damage is because the customer is negligent, reckless, or has malicious intent. (This refers to the “If you break it, consider it sold” notices.)

Activity 3.1.4: Laws governing the sector Please refer to your Learner Workbook for details.

4 . 2 B o d i e s r e g u l a t i n g t h e s e c t o r

Activity 3.1.5: Wholesale and retail terms Please refer to your Learner Workbook for details.

Consumer Goods Council •  https://www.cgcsa.co.za/cgcsa/

South African Retail Council •  https://www.cgcsa.co.za/cgia/

forums/the-south-african-retail-council

Consumer Goods Industry Affairs •  https://www.cgcsa.co.za/cgia

Consumer Goods Council (to help fight retail crime) •  https://www.gs1za.org/resources/

press-office/press-releases/consumer-goods-council-to-help-fight-retail-crime



Unit 5: Shrinkage and losses By the end of this unit you should be able to:

Understand and explain the concept of shrinkage and losses

Identify methods of shrinkage and losses

Explain why it is important to have policies and procedures in place to prevent shrinkage and losses

Explain what happens when an organisation suffers shrinkage and losses

Understand the context of and use general wholesale and retail terms

One of the realities of operating in the wholesale and retail sector is that you experience stock loss. These come about in a number of ways. Some of these are intentionally dishonest and criminal, while others are not, being the result of flaws in the system or human error.32

5 . 1 D e f i n i t i o n s

Shrinkage

“The loss of inventory that can be attributed to factors including employee theft, shoplifting, administrative error, vendor fraud, damage in transit or in store and cashier errors that benefit the customer. Shrinkage is the difference between recorded and actual inventory.”33

Inventory loss

“A record of the amount and type of items missing from stock. Loss of inventory is a condition in which there is less of an item in stock than database or paper records indicate there should be. These occurrences must be tracked to identify patterns of loss that are linked to misplacement or theft of inventory items so that corrective action can be taken.”34

Shoplifting “Shoplifting (also known as boosting and five-finger discount) is a popular term used for theft of goods from a retail establishment. The word shrinkage is not a synonym for shoplifting, as it includes merchandise loss by means other than shoplifting.”35

Employee theft

The use or misuse of an employer’s assets without permission. In the retail sector, this includes employees taking stock from employers for personal use or selling it to third parties. Employees include permanent staff, semi-permanent staff and casual staff as well as externally contracted staff such as security personnel.36

Vendor (supplier) fraud

The intentional theft or inventory loss associated with vendors [suppliers], often involving the inaccurate delivery and return of merchandise.37 Vendor fraud … spans a broad range of abuse—from suppliers/vendors creating fictitious companies and submitting bills for payment … to trusted suppliers who … charge the retailer more than they are due.38

32 How to manage shrinkage. Matthew Dyball. Lodge Security brochure. 33 http://www.investopedia.com/terms/s/shrinkage.asp. Accessed 5/2/2015 34 http://www.businessdictionary.com/definition/lost-inventory.html. Accessed 5/2/2015 35 www.thefreedictionary.com/shoplifting Accessed 5/2/2015 36 https://businesspracticalknowledge.wordpress.com/legal-security/employee-theft/ 37 www.tycoretailsolutions.com/Pages/Challenges.aspx?ItemId=3 38 www.apexanalytix.com/vendor-fraud.aspx



Typical vendor fraud prevention methods are vendor truck and delivery audits and detailed receiving. Often administrative errors can also contribute to the variance between the inventory [a retailer] owns on [its] books and the actual physical inventory.39

5 . 2 C a u s e s o f s h r i n k a g e a n d l o s s e s US114895, SO5 AC1, AC2 EEK10 The biggest cause of shrinkage experienced by retailers is theft—whether carried out by customers or employees. The results of a study published by the Global Retail Theft Barometer in 2011 found that customer theft (shoplifting) accounted for 50% of stock loss and staff theft for 39%.40 Internal stealing is done by people not only directly employed by the company, but also by staff of companies contracted by the retailer, such as cleaners and security guards. 41 Shrinkage accounts for nearly a quarter of all retail profit and about 83% of shrinkage can be attributed to crime, with administrative error a smaller culprit.42

Figure 4: Global Retail Theft Barometer: Causes of shrinkage43

Global Retail Theft Barometer. www.retailresearch.org/grtb_currentsurvey.php

In the 2009/2010 survey shrinkage was attributed to:

Internal errors (mispricing, invoicing and scanning errors and administrative failure) represented 16.2% of total shrinkage.

Employee theft caused 35% of shrinkage.

Customer theft (shoplifting and organised retail crime) accounted for 43.2% of shrinkage.

39 http://www.tycoretailsolutions.com/Pages/Challenges.aspx?ItemId=3. Accessed 5/2/2015 40 Global Retail Theft Barometer. 2011 Study. www.retailresearch.org/grtb_currentsurvey.php. Accessed 9/2/2015 41 Retail Security. Shathi Govender. Business Essentials. 10/10/2012. Accessed 5/2/2015. http://www.fmessentials.com/press-room/retail-security 42 Retail Security. Shathi Govender. Business Essentials. 10/10/2012. Accessed 5/2/2015. http://www.fmessentials.com/press-room/retail-security 43 Global Retail Theft Barometer. 2011 Study. www.retailresearch.org/grtb_currentsurvey.php



Vendor theft/fraud accounted for 5.6% of shrinkage.

5 . 3 H o w t o p r e v e n t s h r i n k a g e a n d l o s s e s US114895, SO5 AC3 Stock loss as a result of administrative errors is third on the list of contributors to shrinkage (just more than 16% in Figure 4). This is from system failures, administrative and human errors. By reducing or eliminating this, it makes it more difficult for shoplifting or employee theft to occur. Retailers do a lot to improve and streamline systems that will minimise non-criminal shrinkage. This is done by improving controls and human resources systems, training staff and adhering to healthy security procedures. Most people steal or think of stealing when the opportunity presents itself, but most retailers have systems in place to counter this tendency. Modern technology and improved strategies to prevent losses is making retail theft—whether internal or external—more and more difficult. A lot of money is spent in the retail sector to reduce shrinkage. In 2009/2010, South Africa spent R691 million to prevent retail crime and catch offenders.

Figure 5: Minimising shrinkage44

How to spot a shoplifter Retailers train employees to be on the lookout for potential shoplifters and what tell-tale signs to watch out for to identify them. 45 Look out for customers who:

44 How to manage shrinkage. Matthew Dyball. Lodge Security brochure. http://www.lodgesecurity.co.za/index.php/news/11-news 45 Strategies to Prevent Shoplifting and Employee Theft. 2008 Specialty Retail Report. Nancy Tanker. http://specialtyretail.com/issue/2008/10/running-a-cart-or-kiosk/dealing-with-retail-theft/strategies_to_prevent_shoplifting_and_retail_theft/. Accessed 5/2/2015

•  Non-criminal causes • System errors • Packing errors • Delivery errors • POS scanning errors • Pricing errors • Product damage • Product out of date • Information errors

Get rid of this ...

• Criminal causes • General public theft • Employee theft • Vendor fraud

... to avoid this



Can’t look you in the eye

Seem nervous

Wander around not buying anything

Leave the store and return repeatedly

Loiter in corners that are difficult to watch

Seem to watch store employees and other customers too closely. These techniques may come in handy in preventing shoplifting:

Be constantly alert

Make eye contact and greet customers

Offer help to customers who linger

Identify areas where shoplifting is most likely to take place

Keep a list of suspicious customers and circulate among co-workers

The store should display signs warning shoplifters that they will be prosecuted When you suspect a customer of shoplifting:

Do not directly accuse the customer of stealing or physically stop them. Call security.

Allow the person to pay for the item they “forgot” to pay for. You may ask: “Are you ready to pay for that?” or “Can I ring that up for you?”

Cooperate with security and the legal process, if it comes to that.

5 . 4 H o w d o s h r i n k a g e a n d l o s s e s a f f e c t t h e b u s i n e s s ? US114895, SO5 AC4

A 2011 study by the Global Retail Theft Barometer found that in 2009/2010: 47 Total global shrinkage cost retailers R952 billion or 1.45% of sales (up 6.6%) Shrinkage in South Africa cost retailers R6.1 billion or 1.71% of sales (up 0.01%) South Africa had the fourth highest shrinkage rate at 1.71% with India at number 1 with 2.38%

When a retailer’s products are stolen, the retailer is left with less stock to sell to honest customers. With less stock, the retailer’s resources to cover costs, pay suppliers and meet other financial obligations are reduced. This reduces both income and profit. When combined with increases in other costs (petrol, electricity, security services), the impact on the business can be crippling. Stealing—whether internal or external—is wrong and the consequences are far reaching. Lost inventory (through theft) not only reduces the retailer’s profit, but it ultimately affects staff income. With reduced profits, expectations of increased wages and salaries cannot be met. It is in nobody’s interests and damages not only business, but also trust. Smart employees do not steal. They make their employers aware if they know of co-workers who do.

47 Global Retail Theft Barometer. 2011 Study. www.retailresearch.org/grtb_currentsurvey.php.



Activity 3.1.6: Shrinkage Please refer to your Learner Workbook for details.



R e f e r e n c e s

businesspracticalknowledge.wordpress.com/legal-security/employee-theft/

www.thefreedictionary.com/shoplifting

www.businessdictionary.com/definition/lost-inventory.html. Accessed 5/2/2015

www.investopedia.com/terms/s/shrinkage.asp. Accessed 5/2/2015

www.apexanalytix.com/vendor-fraud.aspx

www.tycoretailsolutions.com/Pages/Challenges.aspx?ItemId=3

Bureau of Market Research. 2014. UNISA. Retail Trade Sales Forecast for South Africa, 2014, pp28, 29.

Consumer Act brochure. BDO Southern African Coordination (Pty) Ltd. June 2010. Chapter 2.

www.businessdictionary.com/definition/fast-moving-consumer-goods-FMCG.html

FNB. May 2009. Research Economics Sector Chartbook: SA Retail Trade.

FNB. May 2013. Sector Chartbook: Retail & Wholesale Trade.

Global Retail Theft Barometer. 2011 Study. www.retailresearch.org/grtb_currentsurvey.php

Global Retail Theft Barometer. 2011 Study. www.retailresearch.org/grtb_currentsurvey.php

Global Retail Theft Barometer. 2011 Study. www.retailresearch.org/grtb_currentsurvey.php. Accessed 9/2/2015

How to manage shrinkage. Matthew Dyball. Lodge Security brochure.

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What Are Organizational Subsystems? Demand Media. Neil Kokemuller. Accessed 4/2/2015. smallbusiness.chron.com/organizational-subsystems-41735.html

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