Store managers are responsible for two very important assets: real estate, or the physical store, and employees. It’s no coincidence that these two are also the largest expenses any store manager must worry about.
Also at the top of the list of most store manager’s worries is retail loss.
According to a 2019 survey from the National Retail Federation, the following three risks are the top in-store priorities of retail managers:Organized retail crime, internal theft, Return fraud. All of these have elements related to two important issues we’re going to look at in this video: retail loss and prevention related to inventory shrinkage and employee theft.
What is Shrinkage?
Technically speaking, shrinkage is the difference between the recorded value of inventory and the value of the actual inventory. In other words, it’s the difference between what’s on the books and what’s actually physically in the store. If your store is suffering from shrinkage, there are a number of potential reasons for this. The biggest culprit might surprise you though:
It’s actually employee theft, not shoplifting. Shrinkage related to employee theft is 47%, which is substantial. We’ll talk more about employee theft here in a bit.
So how do we actual calculate inventory shrinkage? As mentioned before, it’s what’s on the books vs what’s on hand, so we take the recorded value of inventory and subtract the actual value of inventory on hand. All of these figures are expressed in retail prices by the way, not our cost. Then we divide this by our actual sales for the time period we’re looking at, or in this case a month.
Let’s look at an example. If a retailer has $825,000 of inventory on the books, but only counts $702,000 of inventory on hand, then it would have a difference of $123,000. If we divide this be the total sales for the time period we’re looking at, which is a month, then this would result in a shrinkage rate of 2.3%. Now, is that a lot? Let’s see what the Nation Retail Federation survey has to say. Of all of the retailers surveyed, you can see that the average shrink rate for retail in 2018 was 1.38%. So 2.3% would be on the high side. In fact, shrinkage is a $100 billion problem for retail worldwide every year. Now, let’s look at the second largest contributor to inventory shrinkage first: shoplifting.
Shoplifting
One of the biggest myths about shoplifting is that shoplifters are those in need who just can’t afford the basics to get by. Like they’re some modern-day Jean Valjean just grabbing a loaf of bread to feed his family.
Top Items Shoplifted
The reality is top items shoplifted at retail have far more to do with making a profit in black markets than feeding the hungry. Ink cartridges, High-end headphones, Razors, Makeup, Teeth whiteners are all very sought after. If you ever see an online auction for any of these items and the price is a little too good to be true. It’s probably stolen.
Oh and chances are, if you see a product in a store wrapped in one of these so-called spider wraps, then this is a product that’s been flying off the shelves…and not in the good way.
Spotting Shoplifters
But spotting shoplifters can be difficult. There’s no one “type” of shoplifter. One out of every 11 patrons shoplifts something, men and women engage in it at roughly the same rates; and children and teens only make up 25% of shoplifters.
Let’s look at some ways we can spot shoplifters. First, don’t stereotype and don’t assume shoplifters will be poorly dressed. Oftentimes, they’re dressed well. Spot loiterers, or people just “hanging out” in the store and not making purchases. They could be casing the store to find vulnerabilities or patterns. Look for groups of people, Especially if they seemingly enter the store together and then immediately split up. Watch their eyes, hands, and body. Are they engaging in suspicious behaviors like spending more time looking at the cashier or sales associate than actually shopping or their eyes are not following their own hands? These could be tell-tale signs. Look for people with loose clothing – The images on the right show a woman who managed to fit a 12-pack of soda, a large container of cooking oil, two wine bottles, and two cans of meat under her dress by faking pregnancy. Shoplifters can be very creative.
Preventing Shoplifters
Here’s the thing. Catching shoplifters is fine, but it’s almost not worth the hassle. You’ve got to wait for the cops to show up, take a report, it’s a big time loss for a busy manager. It’s much better to just prevent the shoplifting in the first place. Retailers are only really going to be able to catch maybe 3% of the shoplifters that work their stores. If they engage in effective loss prevention strategies, they can lower shoplifting rates by 80-90%.
How can we prevent shoplifters in the first place?
You can adopt loss prevention technology in your stores. Magnetic tags, radio signal hard tags, and other systems discourage light fingers from stuffing items in bags and leaving the store.
The store layout itself is another important factor. If the store is laid out in such a way that provides cover for shoppers to steal, then your layout isn’t helping you. More expensive items should toward the back of the store or in lockable cabinets. These are design considerations you also need to think about.
Also, making sure that you have closed-circuit cameras throughout the store will also discourage shoppers because they’ll never know when they’re being watched and the store will have evidence to use against them if the cameras record them in the act.
And finally, the one thing that all shoplifters hate: Attention. In the early 1980s, Walmart noticed that having someone stationed at the entrance had a significant impact of shrinkage. A thus was born the Walmart greeter role. If you suspect someone of shoplifting, rather than passively spying on them and trying to catch them in the act, better to walk up to them, shower them with attention, and let them know that the store really values them as a customer and will keeps tabs on them to make sure they have everything they need. A shoplifter will hate it. But a real customer will love it. It’s a win-win.
Organized Retail Crime
As mentioned earlier, organized retail crime is the top area that retail managers are worried about. According, to the NRF, 92% of companies surveyed had been a victim of organized retail crime in the past year. In fact, shoplifting gangs cost US retailers upwards of $30 billion per year. Organized retail crime can be as simple as a pair working in tandem, one distracting employees while the other makes off with product. Or perhaps the most egregious example of organized retail crime, the “flash rob”. It’s kinda like a flash mob, but instead of some staged musical number or silly prank, it’s a hoard of people descending on a store at once and robbing it blind and there’s virtually nothing any employee can do about it.
Here’s a video of a flash rob event in a convenience store in Cedar Rapids, Iowa after a fireworks display.
And another nearby at the Pleasant Prairie Outlet Mall.
Employee Theft
We’ve seen that shrinkage is a problem because of shoplifting, but it’s an even bigger problem due to employee theft.
On average, retailers lose $1,264 in inventory shrinkage per dishonest employee. That’s potentially a whole lot of money if you’re a large retail chain.
Employee theft can happen at any type of retailer, but fast food is where it is most prevalent. But sometimes the employee theft impacts the bottom line a little more directly, as when employees steal money directly from the retailer. One of the most common ways that employee theft can happen is at the cash register.
If you notice an employee an employee working a register and see a series of stacked coins around the register, chances are that employee is engaging in cashier stacking. These employees are shorting the customer and are keeping track of the exact amount that they need to take from the register at the end of the shift so their cash drawer balances out. A penny equals a dollar, a nickel equals a five, and so on. It doesn’t even have to be coins. They might use paperclips, rubber bands, or even M&Ms.
If you are a retailer has a product that is commonly purchased and many customers end up receiving virtually identical receipts, then you might want to be on the lookout for employees working with an open register. In this scenario, an employee rings up the first customer, gives them the receipt, and then proceeds to print out multiple duplicate receipts of that transaction. When the next customer shows up with the exact same purchase, the employee will hand them a duplicate receipt and the customer’s money goes right into the employee’s pocket instead of the register. This can happen a restaurants with lunch specials, coffee shops, and so on.
One of the most prevalent scams that employees are using to steal funds from employers these days is through the use of gift cards. A customer might come in the store to return a product and the refund might be placed on a gift card. What is actually happening is the customer is a co-conspirator of the employee and the returned product may not even be real. The gift card can then be sold on websites like eBay. Many retailers now have loss prevention specialists who constantly troll auctions sites like eBay looking for their gift cards and tracking them back to their own employees. Employees working with friends to defraud the retailer is a very common practice. It even has a name:
Service Sweethearting
Retailers lose billions annually to this practice. It’s a huge challenge.
Why does it happen?
First and most obvious, employees looking for financial gain. It could be providing free drinks to ensure higher tips or to share the profits on items rung up at a lower price. They could also be doing it for reciprocity reasons. They have friends at other stores that give them unearned discounts, so they return the favor.
Job-related factors might include work group norms, in other words everyone else is doing it, so what can’t I!. Low job satisfaction or the employee’s perception that the employer doesn’t care about them can also contribute.
There could be personal trait factors at play. Trying to look cool in the eyes of their friends. Employees that enjoy the thrill of taking risks. There are even personal traits that can predict employees who won’t engage in service sweethearting, namely those will clear moral beliefs.
So how can we reduce all of this employee theft activity?
First, create a trusting, supportive work atmosphere. Since a lot of employee theft is the result of low job satisfaction and low organizational commitment, providing a positive work atmosphere could go a long way to minimizing the feelings leading to theft.
You also want to make sure you’re hiring and retaining the right people.
Put security policies and control systems in place, so theft becomes more difficult or you could publicly shame thieves like Amazon does in its warehouses.
Finally, beneath it all, employee theft is a Human Resources problem. Meaning that the same procedures we use to keep our employees happy, healthy, and productive will also have an important role to play in minimizing employee theft.
Conclusion
To recap, inventory shrinkage is a $100 billion problem worldwide annually and employee theft is the largest contributor to the problem.
Shoplifting is motivated by greed not need. Most are seeking to profit from their activities. There is no one type of shoplifter, they come in all types and ages. The best approach is to prevent the activity in the first place and not try and catch them in the act.
Organized retail crime is a big deal and 92% of retailers have experienced it. “Flash robs” have become a new trend especially with younger shoplifters.
Finally, employee theft is not limited to inventory shrinkage or stealing products. Many employees steal cash directly. They also engage in service sweethearting for a variety of reasons.