Loss Prevention 101
Focusing on these 3 areas will protect your inventory, your sales, your profits, and your business.
Inventory shrink is one of the most challenging areas for independent retailers to consistently manage. It can be difficult to identify the causes and, once the cause is known, it can be a challenge to remain objective. Allowing emotions to impact our decisions can put a company at risk beyond just the lost inventory.
Consider this real-life example. A retailer recently had to pay a former employee $800,000.00 over the alleged theft of $18 in merchandise. The longtime employee was fired. But without documentation of previous incidents or of patterns of this type of behavior, the store could not prove cause. He made a case before the court and won a settlement that ultimately cost the company much more than the sports drinks he was accused of stealing. The decision makers were not weighing all the facts and patterns when they made the decision to terminate the employee’s employment. All situations involving employees should take into consideration the person’s work history, documentation, and the business impact of each option. One emotionally charged decision could cause you to close the doors of your business.
Beyond the result of a physical inventory, other indicators of shrink are incorrect on-hand values, an unexplained decline in sales, missing or incorrect price tags, low staff morale, and high employee turnover. Finding solutions that address the root cause of inventory shrink is critical to profitability.
In the retail industry, we look at 3 major areas that drive shrink:
1. External theft (shoplifters)
2. Internal theft (employees)
3. Paperwork errors/operational shrink (Includes shipping, receiving, customer returns, and pricing/register issues)
According to the most recent survey from the National Retail Federation conducted in 2016, external losses are now surpassing internal losses, with the balance of what’s left being caused by paperwork errors.
So how do we address these 3 areas of potential theft?
Area # 1: External theft or shoplifters.
There are many reasons why shoplifters steal, as the 80-10-10 rule demonstrates. 10% can’t get themselves to steal. 10% of people will steal no matter what. But 80% of people steal simply because there is an OPPORTUNITY to do so. Your BIGGEST weapon in the fight against shoplifting is your employees. Train them what to look for, how to deter theft, and how to use data to determine trends to prevent theft.
The beauty of all this is, if you’re truly training your employees correctly, the training can help them become amazing sellers for your brand. "What size are you looking for today? Did you have a particular color in mind?" I’ve personally seen entire store teams drive double-digit comparable sales just by utilizing these “selling statements” which not only helps the customer find exactly what he/she is looking for, but they also prevent and deter theft. This is also an area that can create liability if the correct training and procedures are not created and strictly followed. Implementing procedures and training your employees on how to respond to theft situations protects all of your assets and your brand.
Area #2: Internal theft or theft by anyone who works for you.
Opportunity allows great people to make bad decisions. Ensuring you have preventative measures in place, and consistently reviewing them, is critical. Even with the uptick in external theft, many retailers indicate that employee theft is still their main cause of inventory shrink or losses. According to the NRF, the national average of total loss due to internal theft is 35.8% . In dollars, if your store losses are $50,000 a year in shrink, then $17,900 of that is due to employee theft. This area is always the one that no one wants to believe is happening (no one wants to think the worst of their employees), but ignoring the signs can be catastrophic to your business.
Area # 3: Operational shrink assessment, includes a review of the following:
1. Proper cashiering by your employees
2. Accurate accounting for all inbound merchandise (shipments) and any vendor returns.
3. Markdown/Damage process review
4. A solid, accurate physical inventory process
While reviewing the operational areas, you may identify a concern that directs you to a theft concern. If so, revisit the first 2 areas in light of this new information.
If you’re experiencing shrink or have unexplained losses of product or sales in your store, then contact us. At The Retail Coach Consultant Group, we design custom programs and tools that help you identify losses and their causes. We help ensure you are able to increase your sales and profits while mitigating your risks, with both your merchandise and your people.