6 Most Common CFO Objections

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Seasoned Loss Prevention executives know that when attempting to acquire funding for a new LP initiative or solution, they must be prepared to answer some tough questions and possible objections from their CFO, as well as other senior executives.  A common best practice to prepare for these objections is to consult others within the company who have had experience going through this same capital request or budgetary process.  Often times coworkers can share the objections or tough questions that were previously asked of them.  LP professionals can use that knowledge and anticipate other similar scenarios, then practice viable responses.

What if an LP professional does not have someone to consult? 

Here is an opportunity to review some common questions and objections LP executives may encounter when asking for budget allocations or capital for a new or upgraded LP initiative. For illustration purposes, we’ll use the installation of Nedap’s EAS system with RFID capability as the LP initiative being proposed.

 CFO Question: What are the operating costs?

 LP Executive Answer: “Rather than continuing down the path of standard EAS, Nedap’s system is much more intelligent.  It will allow us to use the EAS system as more than just a deterrent to theft, as it provides Retail Analytics.  However, any slight increase in costs when compared to our current LP solution will be more than covered by the increase in sales we will realize due to having product on the shelf as a result of the reduction of theft, as well as the added benefits of RFID technology.  Therefore, this LP solution is well-suited to ensure we reach our break-even point within the first 10 months of the fiscal year.”

CFO Objection: We have other priorities right now. Maybe next year!

 LP Executive Answer: “We understand that one of the biggest challenges of any senior executive is how to justify spending capital on an LP solution, especially when shrink has improved over prior years.  However, it is important to note this LP solution doesn’t only reduce shrink.  It also reduces labor, provides crucial insight into what is being stolen so we can ensure proper replenishment immediately, and provides a wealth of other analytics that can be used by operations, marketing, and Loss Prevention.  Since all of these areas are priorities for us, it is imperative to integrate this LP solution.  By reducing theft, we will decrease turnover, increase average transaction size, and increase same store sales over last year.  With this improved in-stock position, customer satisfaction will undoubtedly improve.”

 Ever heard these common objections?

  • I don’t want to burden the store employees. The have enough to do!
  • This LP solution will NOT improve sales.
  • That sounds like a huge operation! We don’t have the capacity for that right now!
  • This LP solution requires additional hardware and capital expenditures.

For the answers to the above objections and more ways to win over your CFO, click here to download, “Winning Over the CFO – A Practical Guide for Loss Prevention Executives” by Nedap Retail.

Need ROI on Your EAS System? Focus on Refund Fraud

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Electronic Article surveillance (EAS) has been around for quite some time and is still considered one of the leading Loss Prevention tools in reducing shoplifting. Those Loss Prevention professionals who have had the opportunity to interview amateur shoplifters or professional boosters were told many times over that they would rather steal merchandise from a non-EAS retailer than one who employs this technology. But in order to determine the true ROI of an EAS system, data needs to be analyzed.

There are several ways to calculate the effectiveness of an EAS system other than a reduction of shrink as a percent to sales. One other way is to compare the number of known shoplifting incidents within a specified time frame before the EAS system was installed, to a specified period of time after the EAS system was installed. Depending on the retail store and location, one may find a glaring reduction in shoplifting incidents. But shoplifting isn’t the only thing a solid EAS system should be preventing.

Refund Fraud is a large issue and one that is rarely cited as a leading cause of profit erosion. But in the 2015 Annual Return Survey published by the National Retail Federation (NRF), it was revealed that Refund Fraud accounts for 3.5% of total returns. If that doesn’t seem like a large number, then perhaps seeing it in dollars will cause more concern. According to the NRF’s 2015 survey:

  • Returns as a percent of total sales is 8.0%
  • Returns totaled $260.5 billion.
  • With 3.5% of returns being fraudulent, this equates to $9.12 billion in lost revenue.

Ensuring the right EAS system and the right EAS tags are in place are the two most important things a Loss Prevention professional can do to ensure the greatest ROI from the lowest possible investment. Although a huge challenge for retailers has always been getting a high level of tagging compliance from employees, some retailers have employed source-tagging. But if determining an effective ROI from your EAS system is the goal, then shoplifting isn’t the only thing to look at. The most successful LP executives know this, and that is why Refund Fraud reduction is one of the main benefits they realize from a modern and efficient EAS system that is coupled with the right EAS tags.

For more information regarding how to couple the right EAS tags to the right EAS system, visit www.nedapretail-americas.com.

About Nedap Retail

Nedap brings 40 years of global experience, market expertise and close cooperation with leading retailers. Everything we do is driven by our mission to make it simple for retailers to always have the right products available. To achieve this, we offer industry-leading solutions for our customers’ diverse needs in loss prevention and stock management. For more information, visit www.nedapretail-americas.com.

How to Build a Successful ROI Analysis

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It is understandable why CFOs and senior executives in retail frequently demand a positive Return on Investment (ROI) analysis for any internal department before handing over the cash.

With net profit margins already so low, it only takes a few bad investments to put a tremendous amount of financial pressure on an organization.

When retailers feel this type of pressure, many tough decisions have to be made. Typically, these tough decisions involve price increases, staff reductions, a decrease in company benefits, and either a reduction or a complete elimination of profit-sharing or bonus programs, just to name a few.

In an effort to assist Loss Prevention professionals, Nedap Retail, a leading international provider of services and solutions for diverse needs in loss prevention and stock management, has compiled information from some of the most successful Loss Prevention executives regarding how they build successful ROI analyses.

For more information on obtaining budgetary approval, download Nedap’s recent whitepaper entitled, Facing the Ancient Loss Prevention Challenge: Building a Successful ROI Analysis.

About Nedap Retail

At Nedap Retail, we work around the globe to deliver industry-leading products, services and solutions for our customers’ diverse needs in loss prevention and stock management. Our inventive thinking and collaborative spirit allows us to deliver tailor-made solutions for the fast paced retail sector.

We simplify retail management while improving your customers’ shopping experience. By taking most recurring tasks off your hands, we create time for you to devote to your customers. And that is what retail is all about. Whether you run a small local store or a large international chain, you will benefit from our broad range of products, ideas and services.

Nedap solutions are built upon more than 40 years of global experience, market expertise and close cooperation with leading retailers. Our worldwide operations are supported by a flexible network of certified partners across the globe. Nedap systems are future-proof (IP-based and RFID-ready), cost-efficient and eco-friendly. Our mission is simply to make sure your customers maintain the best shopping experience whilst we help you protect your profits. Our philosophy: “your store -our store.”

Nedap was established in 1929 and has been listed on the NYSE Euronext since 1947. Our headquarters are located in Groenlo, the Netherlands. We have subsidiaries in the United States, Belgium, China, France, Germany, United Kingdom, the Netherlands and Spain.

How To Speak CFO

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CFOs are analytical, data driven people who are typically looking for attributable, predictable, and efficient ways to add to the bottom line.  It may appear to be impossible to find common ground with a cost-cutting, control-spending professional.  Quite the contrary, LP executives have more common ground with these data driven powerhouses than many might think.  To find this common ground, it is imperative to speak CFO.

An interview with some of the most successful LP executives yielded these three basic rules they follow when speaking to CFOs:

  • They explain the value of the loss prevention strategy or initiative using financial language,
  • They cover high-level strategies rather than technicalities, and
  • They are comfortable discussing goals and metrics from a 30,000 feet vantage point…the big picture.

While presenting, they are sure to use CFO-friendly terms as they make the essential connection between the loss prevention strategy and the company’s high-level business goals.

CFO Speak

Profit. Growth. Revenue. Efficiency. Attribution.

Any loss prevention program can stand behind and knowingly support these CFO-friendly terms.  The secret is to intertwine the loss prevention need with the CFO’s desired outcome…the bottom line.  For example, shrink reduction equals profit.  Profit leads to growth.  Growth leads to increased revenue. Another example: safety equals employee longevity, which equates to efficiency and improved customer service.  The same is true for solid, well-strategized loss prevention programs in which the ultimate deliverable is an absolute, measureable return on investment (ROI).  It is well known that the ROI is what CFOs and senior executives are most concerned with at the end of the day.  With measureable ROI, the most successful loss prevention programs shine the spotlight on the future and value of the company, the heart of a CFO.

Fluent in the Financials

Failure to speak CFO and make the connection between company goals and loss prevention programs decrease the chances of obtaining the funding loss prevention initiatives require.  Funding will most likely come from one of two financial categories: Capital Expenditure (CAPEX) or Operating Expenditure (OPEX).

  • CAPEX describes funds used for purchasing fixed assets, or upgrades to existing assets. For example, an addition or upgrade to an EAS system to reduce shrink would typically be classified as a CAPEX.
  • However, OPEX funds are used for running day-to-day operations of the stores. These expenditures are typically categorized as either fixed costs or variable costs. Fixed costs would be overhead expenses, such as lease payments for a retail storefront, while variable costs could be the shipping costs per the amount of merchandise sold.

Conclusion

The most successful Loss Prevention executives are willing to discuss the justification of which option would best fund the loss prevention initiative that is being proposed. With three rules, two financial options, and one language, LP executives have the perfect combination to winning over their CFO.

5 Ways To Lower The Total Cost of Ownership (TCO) Of Your EAS Systems

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One of the most important decision factors when investing in a new electronic article surveillance (EAS) system – besides return on investment – is the total cost of ownership of the particular solution.

Total Cost of Ownership refers to the total cost you incur over the lifetime of the system: It includes the purchase price plus the costs of operation, such as installation, service, and maintenance.

Printers are a great example to explain TCO. The price of certain printers is very low, but over the lifetime of the printer you need x new ink cartridges – each almost costing as much as the printer itself. To calculate the TCO of a particular printer, you would do the following calculation: TCO = (price of the ink X number of purchase) + purchase price.

When choosing among different loss prevention solutions, you should not make your decision solely on the item’s purchase price, but also consider any additional costs this purchase will incur over time.

Ultimately every financial decision boils down to ensuring the lowest total cost of ownership (TCO) and ensuring the highest possible return on investment (ROI). And there are several approaches that can be considered to achieve that – and we will look at some of them in more detail today.

Dimensioning For High ROI For Single Stores

Not every store carries the same merchandise, exists in a similar location and has the same risk of shoplifting. Therefore, they do not need the same level of protection.

To maximize the return on investment for each store, we recommend segmenting your stores into three categories and equipping them at the level that is needed:

  • High-risk stores carry a high percentage of hot items and have a high theft risk due to location, etc. and need higher protection than average or low-risk stores.
  • Average risk stores are in a lower risk location but carry a relatively high percentage of hot items. While the shrinkage levels are nowhere near the high-risk store levels, they still need significant protection.
  • Low-risk stores: By definition, the shrinkage in these stores is low — but it still exists. Adjust the equipment needed to the lower shoplifting risk. Here the return on investment is driven by reducing your shrinkage and enabling source-tagging, which the other stores will benefit from.

After you categorized your stores, you can assign these levels a particular loss prevention solution to match the level of protection you need. For low-risk stores, this could mean installing one antenna as a deterrent in combination with smart activators. This way you do not over-invest in some stores, but you also ensure that you achieve maximum return on investment for single stores, not just across all stores.

Lower Your Upfront Investment

While the upfront investment costs are only part of the TCO calculation, they consist of the upfront investment for the loss prevention solution and, therefore, represent a large chunk of the investment. This can be lowered through:

  • A tiered approach – as described above
  • Reduced freight costs by consolidating your source tagging and distribution efforts
  • Power over Ethernet eliminating the need for electrical work – for large chains of stores that can easily save you hundreds of thousands of dollars

Maintenance, Service & Warranty

The biggest ongoing costs of a loss prevention system are the maintenance, service and warranty. However, there are some considerable cost savings if you choose a solution that offers online connectivity, remote device management, and system-internal health checks.

  • Eliminate the need for preventive maintenance (e.g., annual health checks)
  • Reduction of service calls by 70% through online maintenance as service partner can solve most problems remotely saving you the hassle of schedule expensive in-house service appointments.
  • Extended Warranty – look for an option to extend your warranty as long as possible to cover any eventual problems.

Labels & Source Tagging

The other variable costs are, of course, label and source tagging costs. Depending on which solution you chose, you might need to change how you tag. Consider partnering with your loss prevention provider to take advantage of cost-sharing with source tagging to lower your total cost of ownership.

  • Leverage the “Halo Effect” as customers usually not know which items are protected and which not. This way, you can limit the numbers of protected SKU’s.
  • Source-tagging of key articles not only ensures that these articles are protected, but it is also considerably cheaper than manual tagging.
  • Only use the best quality labels in regards to deactivation or detection so you can ensure maximum protection.

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Future Upgrade Path To RFID

Even if it is not sure that your organization will move eventually to RFID in the future, you should consider RFID-ready systems.

These RF-based solutions give you an easy and especially cost-effective way to upgrade hundreds of systems to RFID within a short period by simply clipping in the RFID component. When you are ready, you will have a hybrid RF/RFID antenna or RFID-only EAS antenna system.

Also, remember, the decision to upgrade to RFID should not be postponed due to financial reasons – RFID isn’t more expensive, it is all about choosing the right company and the right antennas for you.

Bonus Tip: Life Expectancy Of Systems

Since TCO is calculated over the entire expected life of the solution you buy, you must know how you can expect the systems to function before they need to be replaced. Choose a solution that has a long proven life expectancy – for example, decades of experience have shown that Nedap systems run on average ten years or longer.

Also, if you invest now in an RFID-ready system, you future-proof your EAS systems for years to come – no matter what your path will be.

Conclusion

Calculating an accurate TCO is crucial when deciding on a loss prevention system. Ask your short-listed loss prevention providers to calculate a detailed TCO for their solution (and work with you to lower it) to give you the needed information to make an informed decision.