Risk management is an essential function for both traditional brick-and-mortar and online retailers, one that increasingly requires specialized software for evaluating, mitigating, and monitoring existing and potential risks to the business. Whether its liabilities arise from physical store customers, issues related to employee well-being, or the risk of an eCommerce data breach, a risk management information system (RMIS) can help retailers more effectively manage the myriad of risks faced by their enterprises.
In this article, we’ll discuss the retail industry’s risk landscape and how retailers can address these risks by implementing an RMIS for their enterprise.
In previous years, retail establishments were primarily focused on the risks related to physical store patrons, employees, and the in-person shopping experience. However, with the rise of e-commerce, retailers are now faced with a myriad of risks—both online and offline—that could result in business disruptions and losses.
The following are several of the most common risk factors for retail organizations in their day-to-day operations.
For physical storefront operators, human accidents and injuries are inevitable. Whether it's a customer slipping on a wet floor or an employee spraining their wrist while replenishing inventory, accidents are bound to happen. However, a complex series of actions and procedures are set into motion when such unfortunate incidents occur in a retail setting. This could involve reporting and investigating injuries, assessing workers' compensation, validating compliance with any relevant regulations, working with insurance providers, and more. Without a centralized system in place for handling retail risk, retailers can manage these incidents more effectively and reduce their exposure to liability.
A brick-and-mortar retail establishment incurs continuous overhead (e.g., monthly rent, utilities) and requires the continuous operation of publicly-accessible facilities to generate income and thrive. Property risks such as extreme/adverse weather conditions and natural disasters pose ongoing, complex business continuity challenges for retailers—especially when managing multiple locations and outlets. Forward-thinking businesses are incorporating business interruption insurance as part of their retail risk management strategy for dealing with unplanned closures. These strategies more often include the implementation of an RMIS to manage and streamline risk insights across multiple retail locations and regions.
Bad actors pose numerous risks to retail enterprises, the most common being inventory theft in the physical storefront. The number of retail shoplifting and petty theft incidents have skyrocketed across the board, post-pandemic. Suffice to say, the meteoric rise in crime across the country has arguably impacted brick-and-mortar retailers the most. The National Retail Foundation estimates that the retail industry lost $94.5 billion in 2021 due to missing inventory. This inventory is deemed missing for various reasons, including employee theft and product damage, but most of the loss was due to shoplifting. In the same year, retailers on average experienced a 26.5% surge in organized theft incidents
While preventative measures and security controls like physical security systems, monitoring devices, and other anti-theft technologies can help mitigate the risk of theft, retailers should incorporate the proper risk management and transfer mechanisms to offset these unavoidable inventory losses. This includes developing and implementing a comprehensive retail risk management strategy as well as ample property and inventory insurance to cover theft and other losses.
For vendors with online stores, the continuous exposure to online threats and the risk of digital theft requires ongoing vigilance and monitoring. However, cyber risk is also prevalent in the traditional storefront—for example, point-of-sale (PoS) equipment and other connected retail devices are often infected with malware for stealing customer data.
Retailers should conduct regular penetration tests on their websites, assess the security of their in-store computing devices and equipment, and purchase the proper cyber insurance to cover damages related to data breaches and other compromises. Enterprise risk management software can help in identifying and assessing these critical enterprise risks, as well as provide critical insights for accepting, transferring, treating, or eliminating them.
The previously mentioned risks are just a few of the business challenges that retail enterprises must face in today’s complex risk landscape. As these risks carry a moderate to high degree of uncertainty, a myriad of insurance solutions exist for transferring the risk of the unknown to a third party. However, all of these types of insurance require analytics, a streamlined standardized workflow, and a single source of truth. This is what an RMIS can provide.
An RMIS allows retailers to manage the risk of human injury, loss/theft, business continuity interruption, and more using a comprehensive platform for enterprise risk. The resulting analytics and insights can be used by the retailer for improving their security, bolstering employee practices, and setting the proper parameters for insurance coverage, to name a few. For example, a retail enterprise may rely on the analytics from an RMIS software solution to determine shoplifting trends across retail locations or view all loss claims from a designated period visually on detailed maps of all the retailer’s outlets.
Interested in learning more? Book a demo and see what Ventiv’s RMIS can (and is doing) for the retail industry.