Retailers Lose a Whooping 107.3bn to Shrinkage

A few years ago, I worked as a store detective for one of UK’s leading retailers. On my first day on duty at a store in Camberley whilst still being briefed by the officer I was to relieve, a couple walked into the store and headed for the coat section. The lady removed one of the coats from the hanger, tried it on and casually walked towards the exit with her partner and made a run towards a waiting getaway vehicle. The reason they got away with it easily was because the coats were displayed very close to the exit.

With this experience in mind whenever I was assigned to another store, I walked around the store – if I noticed any high value item that was not securely displayed, I pointed it out to the store manager and requested that they relocated the item to a more secure location in the store. Some of the managers took my advice but most did not. In their eyes I was just a store detective, what did I know about merchandising?

On another occasion I was assigned to a store in London Colney. Upon arrival at the store, I noticed coats that were worth £250 displayed right at the entrance. I went to the manager and expressed my concern to him. I jokingly remarked that even George Tenant, the then CIA director could not secure those coats in that location. He ignored my advice and left the coats at the entrance. A few hours later, some of the coats were stolen. After the initial episode, I went back to him, thinking that he was going to listen to me since he had just lost a couple of the coats, it made no difference. It was after losing 20 out of the 25 coats that he made the decision to move the remaining 5 to a more secure location.

On this same site, there were two big retailers and they shared a single toilet facility between them. What shoplifters did was they would steal from one store, and just casually walk as if they were heading for the toilets which were located between both stores and if they got stopped by any of us, they would say that they were going to the toilet. Even though the toilet was located outside of the store, because it belongs to the store, they were technically right.  This arrangement caused both retailers to lose thousands to shoplifting and no one in both companies seemed to have connected their merchandising strategy or toilet arrangement to shrinkage.

In a recent report compiled by the Centre for Retail Research in its Retail Theft Barometer Report, it was revealed that retailers lost $107.3bn or 1.36% of their sales to shrinkage. Shoplifting accounted for $45.5bn or 42.4%, employee deviance accounted for $37.8bn or 35.3%, vendor theft and fraud $5.8bn or 5.4% and administrative errors $18.1bn or 16.9%. Meanwhile, last year, the industry spent $26.8bn on loss prevention.

The big question now is why is it that with the continuous increase in loss prevention spending by the industry combined with the advancement of technology- the industry has still not been able to get a grip on its shrinkage challenge? Eli Goldratt gave the answer in his audio book: Beyond the Goal. He said in order to evaluate the effectiveness of any technology we need to ask ourselves the following questions:

  • How powerful is the technology?
  • What limitations does it diminish?
  • What helped us to operate without the technology previously?
  • What policies and procedures should we put in place now to accommodate the new technology?

The last question is the most potent for our subject matter. What policies and procedures should a retailer put in place in relation to their loss prevention expenditure? When I told one of the store managers to relocate the high value coats to a secure location, he replied that merchandising instructions came from the head office and there was nothing he could do about it. When I expressed my concern about the location of the toilets to the manager in London Colney and how it was causing them to lose thousands, he said he did not have the authority to relocate the toilets.

Retailers keep spending billions on loss prevention technology without changing the rules that allow shrinkage to flourish. You cannot spend billions on Point of Sales (POS) technology without spending a few thousand on training your staff to make proper use of the technology. The same applies to receiving technologies. They keep spending money on sophisticated receiving technologies without training receivers to make maximum use of the equipment or the culture that makes it easy for vendors to conduct theft or fraud. To secure goods on the shop floor, the first step would be to change the perception in head office that says that placing a £900 coat at the entrance is a good way of enticing customers to buy or placing a £700 camera in the store unprotected is good customer service.

Furthermore, the most effective tool for stemming employee theft is not hiring the person in the first place. You cannot prevent employee theft without having a robust HR department that carries out thorough background and reference checks on applicants.

Step one for reducing loss in the retail industry is change of culture from the high pressure environment which focuses solely on increase sales to the concept of sales creation and profit protection.

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