Retail Shrinkage: A Significant Problem

A total of 100 retailers participated in the National Retail Federa­tion’s 2015 “National Retail Security Survey,” representing more than 20 retail market categories. The largest sample (24 percent) came from retailers seeing $1 billion to $2.49 billion in sales.

“For some time we’ve been looking to compare where the shrinkage is coming from, and for the most part the highest amount has been internal theft,” Richard Hollinger (the study’s co-author) says. “For the first time, we’re actually seeing shop­lifting exceed the internal numbers.” The efforts to combat shrinkage are substantial. Retailers use loss prevention systems “almost universally,” but loss prevention budgets represented less than 1 percent of overall sales. Specialty apparel retailers spent an average of 0.63 percent of sales on loss prevention measures; grocery stores used 0.36 percent.

Almost all respondents are pursuing efforts to cut down on high-risk employees. Some 89 percent said they’re con­ducting criminal conviction checks, 86 percent conduct mul­tiple interviews, and 73 percent verify employment history. Men’s and women’s specialty apparel stores and supermar­kets are pre-employment screening leaders, with 92 percent checking criminal convictions and 83 percent verifying past employment. Grocery stores and supermarkets reported 100 percent criminal background checks, with 83 percent test for drugs.

Training plays an important role, as do hotlines and incen­tives. Of those surveyed, 95 percent have an anonymous hot­line and 88 percent use awareness posters; more than one-half offer a variety of training programs and notification systems. The leading program continues to be videos (72 percent), but more than 55 percent use Internet-based systems and 54 per­cent offer “honesty incentives.” Employee incentives offer great value to loss-prevention strategies, but retailers still must prove theft.

All respondents use burglar alarms and 93 percent use digi­tal video recorders; 66 percent use live hidden closed-circuit television. More than 69 percent use point-of-sale data min­ing to help losses at the till. In-store deterrence—plain-clothes detectives (41 percent), receipt checkers (38 percent), and signage (36 percent)—are also gaining traction. One-third of department stores use acousto-magnetic electronic security tags, but all men’s and women’s specialty apparel stores and sporting goods retailers use them.

Hollinger believes the best programs are a combination of human resources and technology. “We’ve been seeing this for years: Hire the best people, train them as well as you can by making them aware of the impact of shrinkage, control your merchandise to make sure you know where it is and where it’s going, and develop a range of technologies to apprehend those who are stealing from you,” he says.

In human resources, loss-prevention staff can make a budget work and are leaders in diversity. One in four loss- prevention managers are women, slightly higher than the national trend that sees 22 percent of senior leadership roles filled by women. Almost 10 percent of loss-prevention manag­ers are Hispanic.

The war against Organized Retail Crime (ORC) transcends the retail industry and is a national issue. Major cities from Minnesota to Utah are forming their own retail crime alliances. “The way we should be tackling crime as a whole is by making sure we come at it from an organized crime perspective,” St. Paul Police Sergeant Charlie Anderson said after formation of the Twin Cities Organized Retail Crime Association.

Even with growth in regional and federal assistance, retail­ers have a responsibility to protect their merchandise and catch those who steal. What will loss prevention look like in 2020? “A major thing that we’re going to see is a continuing emphasis on technology,” Hollinger says. “There’s a continued emphasis on trying to find better technologies to monitor and catch shoplift­ers and employed thieves.”

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.