Loss Prevention: A Comprehensive Guide for Retailers

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Loss prevention is a very real challenge for retailers. Shrinkage is a problem that costs retailers billions of dollars every year. Yet businesses are using tools and technologies to prevent shrink less and less.

If you consider the loss associated with shrink, it’s often two-fold: Not only are you losing the capital that you invested to attain that product, but you’re also missing out on the potential revenue the product could have generated with a sale. Not to mention the indirect effects stockouts have on your business, hurting customer perception of your brand and potentially pushing shoppers to your competitors.

That’s why we’ve put together this comprehensive guide to loss prevention for retailers, including the main causes of shrink and what you can do about it.

Where to start with retail loss prevention

When developing your loss prevention plan, it’s helpful to consider the causes for shrink. The biggest contributors to this loss in capital should be your primary areas of focus.

Shrink is caused by a few main things:

External theft

Shoplifting accounts for nearly 36% of total retail shrinkage. This could include the straightforward shoplifter who steals items, or more complex schemes like returning stolen items for store credit or even cash. This could also include using counterfeit money to purchase merchandise.

Internal theft

Employee theft competes with shoplifting, causing just over one-third of shrinkage. This could also be a straightforward theft, simply taking an item that hasn’t been paid for. However, internal theft also includes processing fake returns, giving out fake gift cards, leaving items off an order, or even taking cash from the till.

Administrative error

Mistakes happen, and that’s no different when it comes to loss prevention. In fact, administrative errors, or paper shrink, contribute to almost 19% of a retailer’s shrinkage. Businesses which rely on manual processes and systems are more susceptible to this type of shrink.

Supplier fraud

The smallest contributor to shrinkage, supplier fraud is still a consideration. It’s the cause for nearly 6% of inventory loss. Because it’s the least likely culprit, many loss prevention strategies focus on both forms of theft. If your LP efforts are fruitless, it could be an indication that it’s time to investigate your manufacturers and other supplier partners.

Loss prevention for your retail store

For the purposes of this article, we’re looking at LP in terms of these four categories:

  1. Physical security
  2. Cash handling
  3. Product
  4. Staff

Physical security

Let’s start with the obvious: security cameras. These are one of the most common and effective loss prevention tools you can use.

“We recommend setting up visible cameras throughout the store so you can always see what’s going on from behind the counter,” says Elie Y. Katz, CEO and president, National Retail Solutions. “It deters thieves from taking whatever they want because they know they’re being watched, and the same goes for employees.”

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Cameras should be on every POS terminal and the entrance to the store, as well as any loading or delivery areas. You can use basic cameras that simply record the scene or employ more advanced technology. American Apparel, for example, used video recordings to analyze foot traffic and how customers moved through the store. Thanks to these insights, they reduced theft by 16%.

Mirrors are helpful and relatively inexpensive tools to increase visibility, as well as let customers know that you’re on top of things.

For a more human touch, consider hiring security staff. This could be a single guard who stands by the entryway or a third-party security company which specializes in preventing retail theft. You can also “hire” an LP robot to do the job.

LP robot

No budget to get your own LP force up and running? Make friends with your local law enforcement. Visit the U.S. Department of Justice’s Office of Community Oriented Policing Services for more information and advice.

Your physical security LP checklist

  • Record the date of your last LP audit
  • Always change locks if a key is stolen, lost, or misplaced
  • Install a functioning alarm and camera system
  • Assign each employee a unique access code for the building, POS, etc.
  • Keep the store employee-only outside of operating hours
  • Keep customers out of employee areas, like offices or stockrooms
  • Secure all keys to cash registers, POS systems, etc.
  • Install a key control log for all business keys
  • Check if any cameras are offline or not working
  • Regularly change passcodes

Cash handling

While this overlaps with physical security and staff in many ways, cash handling is one of the most important aspects of LP. At the end of the day, we’re in this business to make money — not to have it taken away.

First thing’s first: Choose a POS terminal that can offer extra security features. “[Find a] POS [which] has a user management interface for clerks to log in and out, so store owners can know who was at the register at any specific time of day or night,” says Katz. In the event that theft does happen, you can pin down who was in charge of the register at that time.

Many POS options will allow you to create different users with varying levels of permissions and access, which is also useful in LP.

You’ll also want to closely monitor your cash totals — specifically being mindful of regular shortages and overages. Regular reviews and audits, by period and associate, can help you and management stay on top of discrepancies.

Physically speaking, it’s important that a staff member always have an eye on the register in addition to any cameras or surveillance devices. Leaving a till unattended puts you at further risk, and opportunistic shoppers could take advantage of the situation.

Your cash handling LP checklist

  • Introduce a shortage/overage log for each register
  • Train location managers to conduct regular paperwork audits
  • Install a camera at every POS terminal
  • Restrict phone usage at POS and workstations
  • Conduct monthly reviews for each associate’s POS activity
  • Monitor shift sales by associate
  • Set up POS user accounts with appropriate permissions
  • Know the date of and the person who conducted the last safe check
  • Record amount in the cash float at the beginning and end of each day
  • Conduct cash register audits three times per day

Product

Almost as important as cash itself, the merchandise is what helps you continue to generate profit. And it’s more accessible to thieves. After all, your products are on display — not the cash.

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Electronic article surveillance (EAS) is one of the most common approaches, and that’s because it’s so effective. They may not be the prettiest way to stage your store’s entrance, but they give shoppers an immediate impression that you’re on to shoplifters, hopefully dissuading them from trying it in your store. If a customer tries to walk out of your store with a tagged item, the EAS will alert them and your staff (along with the rest of the store).

But that’s just one way to protect your product. Cameras and mirrors, as discussed previously, help, and they should be placed according to your store layout. Surprising for some, how you design your physical space also impacts theft.

Use shorter displays so that whoever’s on the floor can see over them and have a big picture view of what’s going on across the whole store. Place small, easy-to-steal items in displays that are harder to reach.

Signage is also an effective LP tool. We’re not talking about branded signage — instead, signs that reiterate your policy on dealing with shoplifters and the LP measures you currently have in place can dissuade shoppers looking for the five-finger discount. One study found that anti-theft signs with the word “BEWARE” in big, bold letters are most effective in deterring thieves.

Chris Guillot, founder, Merchant Method and instructional designer, The Merchant Map, recommends setting up your space so that you or your associates always have a clear line of sight. She also encourages staff to move about the space, making their presence known not only from an LP standpoint but also for customer service.

“Very few people come in with the intention to steal. Most theft happens because no one was paying attention,” she says. “When associates aren’t circulating enough, they won’t see what might be out of place.”

LP measures in terms of the product aren’t just physical. Your return policy plays an important role. Institute a policy that mitigates fraudulent returns; require the original receipt and customer ID to process and refunds. Make sure customers are educated on the policy during every purchase and print it clearly on every receipt.

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Speaking of making sure paperwork matches up, you’ll also want to make sure that any deliveries to your store match what you’re actually getting. Remember, shrink doesn’t just happen in the store — it can also happen due to supplier error (intentional or not).

Your product LP checklist

  • Merchandise high-theft items appropriately
  • Use extra mirrors or cameras for added protection on high-theft items
  • Allow only managers or supervisors to conduct “high risk” transactions in the POS
  • Make sure showcases are operational and secure
  • Keep damaged and defective product in a single location
  • Ensure all delivered product matches invoices and packing slips
  • Monitor restrooms, or post signs restricting customers from bringing merchandise to the restroom
  • Put hang tags/barcodes on every product
  • Implement security tags on merchandise
  • Conduct monthly inventory counts

Staff

To have a successful LP plan, you’ll need to get your employees on board. And it all starts with the hiring process. When vetting candidates, conduct criminal background checks and look for those who’ve demonstrated honesty and level-headed decision-making in tough situations. These are good indications of how they might handle a potential shoplifting situation.

If LP is a major priority and your budget allows, you might even hire a loss prevention manager to oversee it entirely.

LP training should be part of your onboarding process, as well as mandatory for all retail employees on a regular basis.

“Effective LP programs start with well-trained employees,” says Katz. “Making certain that your employees are trained and knowledgeable in all LP policies, practices and procedures are key to [preventing] your store from losing money.”

Written policies about LP, theft, what to do in certain situations, returns, defective products, etc. should be distributed and reviewed with staff members. Give your employees the chance to ask questions so they can feel confident and empowered in their role — remember, every employee is an LP officer to some extent.

You might also consider an official training program. The Loss Prevention Academy, Loss Prevention Foundation, and Retailer Training Services are three great options.

You’ll also want to make sure that every staff member feels comfortable using the POS, and knows how to accurately ring in items for purchase. Printed manuals and POS companies with helpful customer support can help mitigate clerical errors made during transactions.

To really make employees comfortable in the role as LP advocate, Guillot recommends making it part of their day-to-day. “It could be as simple as daily awareness and auditing around the POS, checking to make sure that all sensors are removed, or talking about one LP point at every shift meeting,” she says.

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Encouraging employees to focus on customer service is another proactive, though a more indirect, LP tactic. “Customer service and loss prevention go hand in hand,” says Guillot. “To drive revenue and preserve profit, so many of the LP practices also benefit service on the sales floor.”

Your staff LP checklist

  • Post the business abuse line, open door policy, local non-emergency phone number, and other important information
  • Draft and distribute written LP policies, including a code of conduct issued to each associate
  • Educate staff on store refund policy and how to handle situations when customers don’t have the required materials
  • Restrict staff from processing their own or friends and family purchases
  • Create a policy for dealing with damaged or defective products

Moving forward with loss prevention in your retail store

LP is different for every retailer. What works for you might not work for the next business. It all boils down to finding out what your LP pain points are, which approaches can mitigate those losses, and implementing that from the top down.

As disconcerting as it is, shrink happens. But if you take the proper steps to implement smart LP strategies, you can mitigate those losses and increase your bottom line.

Check out more LP resources:

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Compliant IA is the leading retail audit platform. It runs on smartphones, tablets, and laptops. Field managers and stores use the app to complete smart checklists at store-level, take photos, and assign tasks with automated reminders. Head office can ensure programs are deployed in time, in full,  everywhere.

About the author:

andreaAlexandra Sheehan

Alex is a copywriter who works with B2B companies in the retail, e-commerce, and travel sectors to create strategies and expert longform, website, and blog content. You can see her work on sites like Shopify, Vend, Stitch Labs, Money Under 30, and more. thealexsheehan.com.

 

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