While cybersecurity threats tend to grab the headlines, good, old-fashioned loss prevention still plays a critical role in retail. That’s because lost inventory (also called shrink or shrinkage) can take a big bite out of a retailer’s bottom line: about $100 billion per year on a global scale.
Some of the loss is due to theft, some to fraud, and some to sloppy store processes. And technology is introducing even more ways for retailers to leak money.
That’s why today’s loss prevention professionals have a much bigger role than standing inside a store giving suspicious-looking shoppers the stink eye. In fact, it’s quite the opposite — they’re working top-down to identify their organization’s biggest holes and to plug them before they sink the ship. And they do it while knowing that whatever tactics they come up with, they’ll only work if they’re properly executed in the stores, where most losses happen.
The loss prevention landscape in 2019
Theft has been around forever, but the methods change as thieves keep up with the times. Here’s what that looks like in 2019:
Good, old-fashioned shoplifting is still alive and kicking. Customers hide merchandise in their handbags, coat pockets, even their babies’ strollers. Sometimes they’ll take a product out of the box, avoiding security tags and making it easier to hide the item. Some even work with accomplices who will try to distract store personnel, making it easier for them to steal.
Organized retail crime
Organized retail crime is a fairly new threat with a big impact. In organized retail crime, or ORC, teams of thieves steal large quantities of items with the intent to resell them. Some networks are structured much like drug rings, with multiple layers of hierarchy, specific roles, and even recruiters.
While some target high-end products like jewelry and electronics, anything the thieves think they can easily resell is at risk: razor blades, diapers, baby formula, even expensive cuts of meat. The items then show up for sale at garage sales, flea markets, or online marketplaces. And the loss to retailers is huge: According to the National Retail Federation’s (NRF) 2018 Organized Retail Crime Survey, organized retail crime gangs cost retailers $777,877 per $1 billion in sales in 2018 — an all-time high.
Whether it’s a scan-as-you-shop app or a fixed self-checkout stand, some customers will take advantage of an innovation that was supposed to improve the customer experience by making shopping more convenient. The method is pretty simple: Shoplifters put items in their chart or in bags without scanning them. They usually scan most items to avoid attracting attention, saving their pretend scans for high-ticket items.
Some “shoplifting” really is unintentional. The cashier doesn’t notice the rolls of paper towel or bag of dog food on the cart’s bottom rack, and the customer doesn’t notice that the cashier didn’t ring it up. It can be a perfectly innocent mistake on both sides, but it’s still shrink.
Wardrobing is when people buy an item — often high-end fashion — to wear to an event and then return it afterward. (Some social influencers do it just to post a selfie on Instagram). It’s common with technology, too, like when travelers buy a pair of noise-canceling headphones to get through an especially long flight. The practice may seem harmless — the retailer can just put the item back on the shelf, right?
But it’s usually not that simple. Sometimes the items show signs of wear (makeup on the collar, a lingering odor of cigarette smoke, etc.), and can’t be resold. Sometimes the “buyer” has kept the item so long that it’s no longer on the sales floor, so the retailer has to mark it down and put it on clearance. And tech items are often returned with parts of the packaging damaged or missing, so that the item has to be shipped back for repackaging before it can be put back on the sales floor. All of those scenarios incur a cost.
There are any number of ways thieves use stores’ return policies against them. In fact, return fraud is so prevalent that it costs retailers between $9 and $16 billion per year.
Types of return fraud:
Return fraud wears several disguises:
- Bringing in a credit card statement that shows the item, claiming the card was stolen, and demanding a refund
- Buying an item, taking it to the car, getting another of the same item, and using the receipt to “return” it
- Trying to return stolen merchandise without a receipt
There are even websites where you can create a print a fake receipt that looks just like an original!
Many big retailers now let employees check customers out right on the sales floor via handheld devices. It’s great for customer service and providing a frictionless shopping experience, but mobile POS doesn’t come without challenges.
One risk, of course, is the security of the data transmitted via those devices. But that’s one thing that’s truly out of the hands of store teams. The risk at the store level comes from something much simpler: Employees setting the devices down and walking away. The internet makes it easy for thieves to find a buyer and sell the device at a profit.
Unfortunately, you can’t talk about loss prevention without mentioning employee theft. Anti-theft devices won’t stop a cashier who has the device needed to take them off (although monitored security cameras might). Nor will they stop the theft of merchandise that never makes it to the sales floor, as when an employee takes something straight from the loading dock to their car. Dishonest employees can also help out their friends by processing fraudulent returns, scanning only a portion of a friend’s “purchases,” or granting unauthorized markdowns.
Loss prevention professionals fight back
The role of the loss prevent professional is evolving to meet new threats. A lot of the work takes place back at the corporate office — keeping up with the latest threats and developing ways to fight back, advocating to buy new technology, etc. There’s also an increased focus on analytics, trying to spot patterns of questionable transactions that take place whenever a particular employee is signed into the register, for example. Some go as far as monitoring social media, trying to catch hints of a planned ORC attack in a certain geographic area.
But they need the help of their store teams
Still, many of the best ways to stop shrink take place within the walls of brick-and-mortar stores. And that means they’re dependent on proper execution by flesh-and-blood employees.
The gold-standard method of preventing shoplifting is offering a great customer experience. Greeting customers as soon as they walk in and checking in frequently to make recommendations or offer advice is not only great for sales; it also tells customers that their presence has been noticed.
Other ways loss prevention depends on store employees to stop shrink include:
- Making sure security cameras are properly installed and operational
- Placing signage and mirrors throughout the store as directed
- Following all company policies regarding payments: checking to see if large bills are counterfeit, requiring an ID for check or credit card purchases, etc.
- Opening boxes at checkout to verify that the item inside is what it’s supposed to be
- Following all company policies regarding returns: examining receipts for signs that they’re counterfeit, processing refunds using the same method of payment as the original purchase, knowing what to do (such as calling a manager) if a customer tries to return something that is obviously worn or damaged
- Following company policies regarding the use of cash registers and POS devices (so that the company will have accurate information about who was using a device at a particular time), etc.
- Reminding customers of return policies when checking them out
- Knowing when to make an exception to a return policy (many retailers bend the rules for their top customers)
- Following all policies regarding the delivery of new merchandise, such as requiring two employees to be present during delivery to reduce the temptation to steal
Turning policies into action
Turning policies developed at corporate into tasks that are properly executed in the stores takes a robust store communication and task management solution — starting with skilled writers who can help break academic-sounding policies into understandable, actionable chunks.
But the communication platform itself is just as important for making sure LP policies and tasks are properly carried out. Features to look for include:
- A searchable knowledge base where policy documents or training videos live so that employees can easily refer to them when needed
- The ability to set up a drip campaign that teaches new employees about their role in preventing shrink
- A way to schedule important reminders, such as why fighting shrink is so important: The company has to do well for employees to do well
- A way to send out reminders for routine LP tasks, like keeping the store clean and orderly or notifying corporate of broken security cameras
- A way to test knowledge by sending out polls that ask employees to choose the right way to handle a given situation
- A way to send high-priority messages, such as an update about a new scam making the rounds
- A way for local stores to share information with each other about particular customers (maybe ORC) who are making the rounds and attempting to shoplift, make fraudulent returns, etc.
- A way for the stores to send feedback to LP employees at headquarters, since stores often hear of new scams before HQ does
- A way to see which stores have completed LP tasks, like placing anti-theft tags on merchandise or posting the store’s return policies at all of the cash registers.
When your loss prevention plan depends on the store teams knowing what to do and doing it correctly and on time, a communication and task management platform like Retail Zipline can be your best friend. Reach out today to schedule a demo.